Can someone explain what is a cubic cost function? I'm taking a managerial economics course, but I've never taken any algebra or calculus; so I'm struggling. I'd like to grasp the purpose of what it is and then try to figure out how to do it. thanks!
Managerial Economics - dongo, Tuesday, February 9, 2010 at 8:04am
A so-called cubic function is nothing else than a polynomial function of degree 3.
f(x)=ax^3+bx^2+cx+d, where a,b,c,d are fixed, but not determined constant coefficients, imposed the condition a != 0.
Managerial Economics - Kiersyn, Tuesday, February 9, 2010 at 9:56am
Wow, this definition is like greek. What is a polynomial function of degree 3? I know what a constant is and also a coefficent. But what is "imposed the condition a!=0? Can someone explain this in a simpler way that doesn't involve algebra or calculus? Thanks
Managerial Economics - Greek needed, Thursday, February 3, 2011 at 12:59pm
Basically, the point of cubic is that you can use the cube (third power) of the number of things produced to predict the total cost of making that many things. It so happens that x^3 (x cubed) very nicely represents certain economies/not of scale in production; it "looks right".
So the whole point is that some algebra can provide a nice formula that approximates the reality of cost functions for which marginal cost (the cost of "making one more") first goes down, then goes up. And some calculus can confirm it.