Cost Models
A cost model is a mathematical representation of the cost of producing a good or service. Cost models are used to estimate the price of a good or service, and to understand the relationship between the cost of inputs and the cost of output.
Cost models can be classified according to the type of input they use. The most common types of cost models are:
1. Material costs: This type of cost model uses the quantity and price of materials used in production as inputs. The output is the cost of production.
2. Labor costs: This type of cost model uses the quantity and wage rate of labor used in production as inputs. The output is the cost of production.
3. Overhead costs: This type of cost model uses the overhead expenses incurred in production as inputs. The output is the total overhead expense for production.
4. Profit margins: This type of cost model uses sales revenue and profit margin as inputs. The output is the estimated selling price for a good or service.
