Quadratic Cost Function

Quadratic cost function has generally been used in empirical studies. It can be stated as:

TC = a + bQ + cQ²

          Therefore

ATC= a/Q+b+cQ

where AFC = a/Q, AVC = b + cQ and MC = dTC/dQ = b + 2cQ Quadratic total cost functions have shape similar to TC curves as depicted in Fig. . The curve represents increasing returns or decreasing costs, as the total cost curve rises at a decreasing rate. 

The quadratic total cost function may also take the form: TC = a + bQ +-cQ² c shown in Fig. 6.9 where ATC = a/Q + b - cQ and MC = b - cQ. Since AVC = ATC - AFC, it can be said that AVC = a/Q + b - cQ. Thus, if the level of output: known, a quadratic function can be fitted for that level of output to find the total, average, and marginal costs. 

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