Optimal Level of Output and Long Run Price
The cost structure of a firm is reflected in its costs functions: total cost TC; average cost AC; and marginal cost MC. Total cost, the sum of total variable and total fixed costs, is generally expressed as a function of the level of output Q. While a firm’s production function is often a bivariate or multivariate function relating its output to various inputs, the cost functions are usually univariate functions relating different costs to only one variable, output. It is therefore much easier to specify and estimate various cost functions for a firm than specify and estimate its production function.