The difference between a linear and a nonlinear cost function is
A
linear cost function is a cost function where, within the relevant
range, the graph of total cost versus the level of a single activity
related to that cost is a straight line.
An example of a liner cost
function is a cost function for use of a telephone line where the terms
are a fixed charge of $10,000 per year plus a $2 per minute charge for
phone use.
A nonlinear cost function is a cost function where, within
the relevant range, the graph of total cost versus the level of a single
activity related to that cost is not a straight line.
Example include
economies of scale in advertising where an agency can double the number
of advertisements for less than twice the costs, step-cost functions,
and learning-curve based costs.
