Managerial Economics | Cost Function
DESCRIBE COST FUNCTION, ALSO MENTION THE CONCEPT OF COST.
Cost functions are derived functions. They are derived from the production function .they are derived from the production function, which describes the an actable efficient methods of production at any one time. Short run costs are the cost over a period during which some of production factors (usually capital, equipment and management) are fixed The long –run term costs are the costs over a period long enough to permit the change of all factors of production. In long run, all factors become variable. Both in short run and in long run, total cost is multivariate function. That is total cost is determined by many factors. Symbolically we may write the long-run function as
C=f(X, T, ,K)
And short run cost function as
C=f(X, T, ,K)
K=PRICE OF FACTORS=FIXED FACTORS(S)
Cost is the function of output c=f(X)
Concepts of Costs
There are many types of concepts where coats are concerned
1. Money Cost
Cost is not unique concepts on the contrary there are various types of costs. The most accepted is the money value or the money cost of production which means the total money involved in production of a commodity. For example money spends on rent, machinery interests’ salary of the employee etc, from a producer’s point of view this is the most important cost concept.