Operating optimum

In economics, the operating optimum denotes the minimum of the average unit costs. The unit price is also defined as the "long-term lower price limit", ie the product price in the sense of Full cost accounting may not be undercut in order not to generate losses.

Definition / explanation

Da das Betriebsoptimum gerade die Gesamtkosten deckt, wird es auch als Gewinnschwelle bezeichnet. Das Gegenteil des Betriebsoptimums ist das Operating minimum, welches die kurzfristige Preisuntergrenze bezeichnet, die allein variable Kosten abdeckt.

Operating optimum

In some cases, the operating optimum is also used as a long-term lower price limit, the Operating minimum referred to as the short-term lower price limit. A product that is sold at the same price as the operating optimum does not generate any profit for the company. If a company has to sell its production below the (variable and fixed) total costs, it makes a loss. That is why the first goal of every company should be to find an operating optimum in order to offer a product on the market in the long term and economically.
Eine Ausnahme ist dabei unter anderem die Einführung eines neuen Produktes, so dass zeitweise das Minimum der durchschnittlichen Kosten unterboten wird, um das Produkt im Markt zu etablieren (siehe Pricing strategies)

It can also be advantageous for companies to set the price at the operating optimum if cutthroat competition takes place in the market or the product is produced without the intention of making a profit. With a linear and degressive total cost function, the operating optimum is at the capacity limit. However, if it is subject to a progressive overall cost curve in line with income law, the operating optimum is the output volume. The unit cost function has a minimum here.

Calculation of the operating optimum

The operating optimum is calculated by forming the first derivation from the unit cost function. This is then set to zero. The value X determined in this way is used in the output function (= unit cost function).

The result calculated in this way represents the operating optimum. Another possibility for calculating the operating optimum is to determine the intersection of the marginal costs with the total average costs. The intersection of the marginal cost curve K '(x) and the unit cost curve k (x) is calculated by setting both functions equal and determining the solution quantity.

Summary

  • The operating optimum is the long-term lower price limit
  • has as its value the minimum of the average cost
  • is not to be equated with the profit maximum
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