COST FUNCTION

COST FUNCTION

• Cost function refers to the mathematical relation between cost of a product and the various determinants of costs. 
• In a cost function, the dependent variable is unit cost or total cost and the independent variables are the price of a factor, the size of the output or any other relevant phenomenon which has a bearing on cost, such as technology, level of capacity utilization, eflciency and time period under consideration.
•  Cost function is a function which is obtained from production function and the market supply of inputs. It expresses the relationship between costs and output. 
• Cost functions are derived from actual cost data of the firms and are presented through cost curves. The shape of the cost curves depends upon the cost function. 
• Cost functions are of two kinds: They are short-run cost functions and long-run cost functions.