Can I setup my Mac Mini using a mid 2011 21.5" I-Mac as the monitor?

I wouldn't get to excited about using the older iMac as a display, because both Mac's need to support Target Display Mode.

carefully read > https://support.apple.com/en-us/HT204592

So....while your older 2011 iMac supports Target Display Mode, the new 2020 Mac's including the M1 Mac Mini does not support using the older iMac's as a Display.

One easy way is to log remotely from the iMac, to the newer Mac Mini.

You first have to configure/allow this possibility on the Mac Mini, in the Control panel.

See here for a quick brief how this can be done: https://setapp.com/how-to/how-to-access-your-mac-remotely

In this way, anything you start on the Mac Mini - will be seen on the iMac, just like if it were on it.

Enlarge in Full screen if you wish, et voila! :)

No, because the new 2020 Mac's including the M1 Mac Mini does not support using the older iMac's as a Display.