to the total expenses incurred in the production of a commodity. Cost analysis
refers to the study of behaviour of cost in relation to one or more production
criteria, namely size of output, scale of production, prices of factors and
other economic variables. The functional relationship between cost and output
is expressed as ‘Cost Function’.
A Cost Function may be written as
C = f (Q)
Eg. TC =
Q3–18Q2 + 91Q + 12
C=Cost and Q=Quantity of output. Cost functions are derived functions because
they are derived from Production Functions. We shall discuss the basic cost
concepts and their behaviour below.