Cost Theory

Cost theory is an area of economics that examines how the costs of producing goods or services change with different levels of output. It helps businesses understand how much it costs to produce each unit, considering factors like raw materials, labor, and overhead. By analyzing these costs, companies can make informed decisions about pricing, production volume, and efficiency. Essentially, cost theory provides insights into how costs behave in relation to production levels, guiding strategies to maximize profitability while managing expenses effectively.