Costs and Scale

Cost functions are derived from production functions and show the relationship between

the quantity produced and the cost of production. This cost of production is the cost of

the factor inputs used in the production process. As a result, there is a direct relationship

between the production function and the cost function. In an era with an emphasis

on cost competitiveness, it is essential to have an understanding of the nature of cost

functions, differences between short-and long-run costs and the significance of scale for

unit costs.