ABSTRACT
Costs are incurred in purchasing factors of production for use as inputs in the production process. The cost of producing any particular output depends on two factors : the technical relationships between the quantities of inputs and outputs (the production function), and the economic relationships between the quantities of inputs and their prices. Thus, the two sets of relationships combine to give one relationship between the quantity of output and the cost of producing it, which comprises the firm's supply function. However, because the first set of relationships (between quantity of inputs and quantity of outputs) varies from industry to industry (and for that matter among product groups within an industry) it is not possible to have a universal 'theory of costs' that is applicable to all industries. Largely as a result of the characteristics of its production functions the transport industry represents a special application of the theory of supply.
