Chapter 9

Cost Function

After studying this chapter, you should be able to understand:

  • The cost function is a derived function since it is obtained from the production function.
  • Total cost is the cost incurred to produce a given level of output in the short run by utilizing both the fixed and the variable factors.
  • Marginal cost is the change in the total cost or the total variable cost due to a unit change in the level of output.
  • The long-run cost curves are formed by the short-run cost curves.
  • The long-run average cost curve is U shaped because of the law of returns to scale.
  • A firm experiences increasing returns to scale because of economies of scale.
  • A firm experiences decreasing returns to scale because of diseconomies of scale.
  • While internal ...

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