Calculus

For explaining how total cost (y) varies with throughput (x) we have generally used two basic functions. They are the straight line: (9.1)<math display='block'> <mrow> <mi>y</mi><mo>=</mo><mi>a</mi><mo>+</mo><mi>b</mi><mi>x</mi> </mrow> </math> $$ y = a + bx $$ and an equation of the second degree: (9.2)<math display='block'> <mrow> <mi>y</mi><mo>=</mo><mi>a</mi><mo>+</mo><mi>b</mi><mi>x</mi><mo>+</mo><msup> <mi>c</mi> <mn>2</mn> </msup> </mrow> </math> $$ y = a + bx + {c^2} $$ If all variable costs are simply and directly variable with output we will use equation (9.1). If not equation (9.2) may give a better and more accurate representation. It all depends on the particular business situation.