The cost function, TC(y), shows the:
A)linear pattern of costs for homothetic production functions.
B)relationship between expenditure on inputs and the scale of input use.
C)minimum expenditure for different outputs, at constant input prices.
D)minimum TC for a level of output, as input- prices vary.

Question

Quizplus · Accepted Answer

The cost function, TC(y), represents the minimum expenditure for different outputs at constant input prices. It shows the total cost of producing y units of output and thus provides information on the cost structure of the production process. Option A is incorrect because homothetic production functions do not necessarily have a linear pattern of costs. Option B is incorrect because the cost function does not show the relationship between expenditure on inputs and the scale of input use, but rather the total cost of producing a given output level. Option D is also incorrect because the cost function does not show the minimum TC for a level of output as input prices vary, but rather the cost of production given a certain level of output and input prices.

The Cost Function, TC(y), Shows The