The correct answer is: C. Minimization of total cost
Baumol’s model of cash management is a model that helps businesses to determine the optimal amount of cash to keep on hand. The model assumes that there are two types of costs associated with cash: holding costs and transaction costs. Holding costs are the costs of carrying cash, such as the opportunity cost of not investing the cash. Transaction costs are the costs of buying and selling cash, such as the fees charged by banks.
The model finds the optimal cash balance by balancing the holding costs and transaction costs. The optimal cash balance is the amount of cash that minimizes the total cost of holding cash.
Option A is incorrect because the model does not attempt to minimize the holding cost. The model attempts to minimize the total cost, which includes both the holding cost and the transaction cost.
Option B is incorrect because the model does not attempt to minimize the transaction cost. The model attempts to minimize the total cost, which includes both the holding cost and the transaction cost.
Option D is incorrect because the model does not attempt to minimize the cash balance. The model attempts to find the optimal cash balance, which is the amount of cash that minimizes the total cost of holding cash.