Loss Minimization

If pricing is less than average total cost but larger than average variable cost, a firm avoids economic loss by providing output in the short run that equates marginal revenue and marginal cost. This is one of three short-run production options available to a company. Profit maximisation (if price exceeds average total cost) and shutdown are the other two options (if price is less than average variable cost).

Loss Minimization

The loss minimization rule applies when a company’s short-run economic loss is less than its entire fixed cost. This happens when the price paid is lower than the average total cost but higher than the average variable cost. Given manufacturing costs and market conditions, it is not so much an absolute law as it is an alternative that every profit-maximising corporation is inclined to follow.

One of three short-run production options available to a company is loss minimization. All three are represented in the table below. Profit maximisation and shutdown are the other two. Price exceeds average total cost at the quantity that equates marginal revenue and marginal cost in profit maximisation. In this situation, the company makes a financial profit. At the quantity that equates marginal revenue and marginal cost, price is less than average variable cost with shutdown. By creating no product and incurring a loss equal to total fixed cost, the firm incurs a lesser loss.

Because the distribution system connects the high-voltage transmission system to low-voltage consumers, the loss in a distributed system is considerable due to the low voltage and high current. Distribution companies (Discos) have a financial incentive to reduce network losses. The cost difference between real and standard losses is usually the inducement. As a result, if real losses are bigger than expected, DISCOs are penalised economically, whereas if the opposite occurs, they profit. As a result, the loss minimization problem is a well-studied topic, and all previous approaches differ from one another in terms of the instrument used for loss minimization, as well as the problem formulation and solution methodologies used.

Principal of Loss Minimization

According to the Principle of Loss Minimization, an insured must always do all possible to limit the loss of his covered property in the event of an unforeseen disaster such as a fire or explosion. In such a case, the insured must take all reasonable and necessary efforts to control and reduce losses. Because the property is insured, the insured cannot ignore or act carelessly during such situations. As a result, it is the insured’s responsibility to protect his insured property and avoid future losses.

Loss Minimization Techniques

Feeder reconfiguration, capacitor placement, high voltage distribution system, conductor grading, Distributed Generator (DG) Allocation, and other methods of loss reduction exist. This study provides a bibliographical overview, background information, and a comparison of three regularly used approaches for loss minimization in distribution networks: capacitor placement, feeder reconfiguration, and DG allocation.

For distribution system loss minimization, there are several strategies accessible in the literature. However, the most commonly used techniques for achieving maximum potential benefits include:

(a) capacitor allocation (possible in high voltage distribution systems)

(b) network reconfiguration (possible in low voltage distribution systems

(c) DG allocation (more attentive on integrating existing small generations, for example, when isolated small photovoltaic plants or wind farms penetrate the distribution system), and (d) DSTATCOM allocation and its combination versions.

e) Concurrent reconfiguration and capacitor allocation

f) Concurrent reconfiguration and DG allocation

g) Concurrent DG and DSTATCOM allocation

h) Concurrent reconfiguration, capacitor, and DG allocation

Loss Minimization in Insurance

Under this principle, it is the insured’s responsibility to take all reasonable steps to minimise the loss to the insured property if an uncertain event occurs. According to the Principle of Loss Minimization, an insured must always do everything possible to minimise the loss of his insured property in the event of an unforeseen event such as a fire or explosion. In such a case, the insured must take all reasonable and necessary procedures to control and reduce losses. Because the property is insured, the insured cannot ignore or act carelessly during such situations. As a result, it is the insured’s responsibility to protect his insured property and avoid future losses.

For instance: Assume Mr. Arvind’s house catches fire as a result of an electrical short. In this dreadful case, Mr. Arvind must do everything necessary to put out the fire, including calling the nearest fire department office, asking neighbours for emergency fire extinguishers, and so on. He cannot stand by and watch his house burn, thinking to himself, “Why should I be concerned?” My home is covered by insurance.

Conclusion

Loss minimization can be regarded as a firm’s goal, especially when a market or industry is experiencing a drop in demand, sales, or revenues. Loss minimization happens together with profit maximisation. Profit maximisation (if price exceeds average total cost) and shutdown are the other two options (if price is less than average variable cost).