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Word Count: 1,196
The term least-cost solution does not describe one specific principle in economics Least-cost solution covers a wide diversity of economical topics that help form an ultimate solution The term can be introduced in the context of a firms aim and objectives eg profit maximization In many cases firms may have other objectives such as providing quality to customers and thus may adopt techniques such as total quality management TQM Organizations such as Banks often prefer to focus on providing efficient services Occasionally firms abide by aims and objectives other than profit maximization to encourage and enhanced operational techniques and image Ultimately most firms override aims to concentrate on maximizing profits At this point a firm will operate accordingly to reduce costs and maximize return in order to acquire full financial benefit from the output When a firm adopts such an aim it is categorized as the usual theory of supply hence is also known as theory of the firm A firm calculates its profits by subtracting the total costs of production from the total revenue generated from the sales of that produced amount See Figure 1 Figure 1 TR - TC Profit Total Revenue V Total Costs Total Income from Sales Variable Costs Fixed Costs Firms must first eliminate unnecessary costs and increase sales performance to generate maximum profit The firm should minimize costs that do not have a direct influence on sales and output A firms inputs and their expenditure Factors of Production have a strong influence on the cost of a firms output If a firm increases its production due to a rapid increase in demand there may be a delay in acquiring the necessary inputsresources For example a firm can employ more labour to manufacture more produce
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