Cost function

COST FUNCTION

  • Production of output requires input, which cost money, and therefore there exist a relationship between output and cost.
  • Total cost curve or cost function represents the functional relationship between output and total cost.
  • Cost function can be presented
    • Arithmetically (tabular form)
    • Geometrically (graphic form)
    • Algebraically (equation form)

Tabular form

Output
TFC
TVC
TC
0
10
0
10
2
10
2
12
5
10
4
14
9
10
6
16
13
10
8
18
17
10
10
20
22
10
12
22

Graphic form

  • Nature of cost curve depends on nature of the corresponding production function.
  • Hence, when cost is portrayed on X-axis and the product on Y-axis, the total cost curve will have the same shape as total product curve.

Graphic form

Algebraic form

  • C = f(Y). Where, C-total cost and Y-output
Last modified: Saturday, 2 June 2012, 6:57 AM