Question

Briefly explain the concept of the cost function.

Answer 1

The functional relationship between the cost of production and the output is called the cost function. It is expressed as

C = f(Q_x)

Where,

C = Cost of production

Q_x = Units of output x produced

In other words, the output-cost relationship for a firm is depicted by the cost function.

The cost function depicts the least cost combination of inputs associated with different output levels.