crates per day, doing so with two machines and eight workers is
technically efficient, but so is using four machines and two workers. To
maximize profits, the firm will choose the lowest-cost combination of
machines and workers.
Such choices about how much capital and labour to use are long-run
choices because both labour and capital are assumed to be variable.
These long-run planning decisions are important. A firm that decides to
build a new steel mill and invest in the required machinery can choose
among many alternatives. Once installed, that equipment is fixed for a
long time. If the firm makes a poor choice, its survival may be threatened;
if it chooses well, it may be rewarded with large profits for many years.
Profit Maximization Is Complicated
Minimization
Any firm that seeks to maximize its profits in the long run should select
the production method that produces its output at the lowest possible
cost. This implication of the hypothesis of profit maximization is called
cost minimization : From among the many technically efficient methods
of production available to it, the profit-maximizing firm will choose the
least costly means of producing whatever level of output it chooses.
Long-Run Cost Minimization