What are some examples of a fixed relationship
Minimum principle and maximum principle
What do the minimum and maximum principles mean, what is the difference and what examples are there? You can find out all of this here!
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Minimum and maximum principle simply explained
At the Minimum and maximum principle are methods for the efficient use of scarce resources (goods, raw materials, Factors of production, Time). These are not infinitely available, while there are no limits to people's needs (Scarcity problem). Individuals and companies can take different approaches to solving this problem. On the one hand, you can try to achieve a set goal with as little effort as possible (minimum principle). On the other hand one can try to get the highest benefit or profit from already given resources (maximum principle). Both principles are considered efficient in business and are part of the Economic principle. So they too are subject to the idea of Homo oeconomicusand the rationality.
For a more detailed explanation of the individual principles, we will split them up. Let's start with the minimum principle.
Minimum principle definition
The Minimum principle will also be Thrift called. Economic actors should be one given goal with as little as possible, that is minimal effort to reach. For this purpose, the use of funds is usually reduced. But changes in the type of implementation can also make it easier to achieve the goals. The typical effort includes the use of resources and time.
Minimal principle examples
So that you can imagine the minimal principle more figuratively, we have a few examples for you:
- Imagine you finally want to go home after a hard day at school or college. Your goal here is to arrive at home. But because you are already tired, instead of your usual beautiful route through the park, you take the shortest route home. This saves you the greatest amount of energy and minimal effort.
- When you get home, you're hungry. Instead of trying hard and cooking yourself something elaborate, you slide a frozen pizza into the oven. Here, too, you will achieve your set goal, namely to satisfy hunger, with minimal effort.
- You now decide to study for the exam tomorrow. Your goal is just to pass it. That's why you just read through the worksheets instead of doing exercises. As you can see, you only use minimal effort here.
- The goal is given
- As little effort as possible should be made to achieve the goal. (The means are therefore variable)
- Example: You founded a start-up. However, nobody knows your product yet. In order to gain awareness, you want to advertise in order to reach 5,000 households (target). Since you have hardly any sales yet, instead of investing in expensive marketing campaigns from an agency, you decide to invest in 5,000 inexpensive flyers that you distribute yourself in your neighborhood. This is how you achieve your goal, namely to advertise your company, but at the same time you only have a minimal investment of capital.
Now that you have an overview of the minimum principle, we come to the maximum principle.
Maximum principle definition
The Maximum principle is also as Yield principle known. This is about with given means the best possible resp. maximum goal to reach. One would be economical with the households of one Benefit maximization and at the companies of one Profit maximization speak.
Maximum principle examples
We also have a few on the maximum principle Examples to you:
- Imagine you're on vacation now. You have decided to try your hand at cooking during this time. For starters, you decide to make something out of the ingredients in your fridge. Here you have the means given, namely the groceries at home. You try to cook something delicious with them. So you have the goal of Benefit maximization.
- You have accumulated money through a part-time job. Now that you have free time, you use your savings to travel. Here, the budget is your given means in trying to plan the best possible vacation for yourself in order to maximize your benefits.
- Now imagine you want to start a business. To do this, you take out a loan of € 20,000. You try to use the loan in such a way that your start-up has as successful a market entry as possible. For example, you could now put all that money into personnel, but to found a start-up it is often enough if there are two or three at the beginning. Instead, you invest in careful product development and marketing, which ultimately enables you to optimally enter the market. In contrast to the previous examples, here you are an entrepreneur. That is why one does not speak of benefit maximization, but of Profit maximization.
- Funds are given
- The highest possible benefit / profit should be generated with the given resources. (The goal is therefore variable)
- Example: You are supposed to plan an event and receive a fixed budget for it. With the means given, you are now trying to organize the most successful event possible so that as many visitors as possible have an incentive to come. This ultimately maximizes profit.
Minimum principle and maximum principle overview
You should now know the difference between the minimum principle and the maximum principle. In summary, here is a brief overview for you:
Since both principles are in conflict with each other, it is hardly possible in reality to apply them simultaneously. For example, it is not possible to generate the maximum profit with minimal effort. A better result also means more effort. The third approach of the economic principle, that Extremum principle, ties in with this conflict. The goal and the means are variable here. You try to generate the highest possible return with as little effort as possible. It is therefore important to find the optimal balance between benefit and effort.
The economic principle states that scarce raw materials and goods should be used efficiently. You can achieve this by applying the maximum principle or the minimum principle.
If you want to find out more about the economic principle, check out ours Contribution to do this!
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