5.3. Cost Minimization and Profit Maximization

Try these first

1. 1.

   What does 'economic useful life' refer to?

   Hint

   Think about the balance of costs and revenues.

2. 2.

   What terminology is used for the currently installed machine?

   Hint

   Consider which machine is in use.

3. 3.

   What is economic useful life related to?

   • Minimizing costs
   • Maximizing profits
   • Both

   Hint

   Think about both sides of cost and profit.

4. 4.

   True or False: The defender is always the most productive unit in use.

   • True
   • False

   Hint

   Consider the context of competition.

5. 5.

   A construction company has an excavator that costs $10,000 a year to maintain. However, new models can operate at a profit of 20% more due to efficiency and reduced operational costs. How might the company assess when to replace the excavator?

   Hint

   Consider future operational efficiency and current maintenance burdens.

6. 6.

   An aging bulldozer frequently breaks down but can still perform some tasks with a low productivity rate. Discuss how the contractor might decide whether to invest in repairs or a new machine.

   Hint

   Think about profit versus cost in decision-making.