Statistical Cost Function

A statistical cost function for a transportation

firm is obtained by using a sample of the firm's

historical data to estimate the parameters of an

assumed stochastic cost function. The cost function

expressed in terms of the estimated parameters is a

statistical cost function. A stochastic cost

function is one for which the dependent (or cost)

variable is random and is expressed as a specific

function (such as a linear or nonlinear function) of

one or more explanatory variables (such as output

and input price variables) as well as a random error

variable. The parameters are generally estimated

using the statistical technique regression 1

analysis .