What Are the Two Assumptions Behind a Simple Linear Cost

question 14

Essay

What are the two assumptions behind a simple linear cost function? Briefly explain the three ways that a linear cost function may behave?
1)Variations in the level of a single activity (the cost driver)explain the variations in the related total costs; and
"2)Cost behavior is approximated by a linear cost function within the relevant range. This means that total cost versus the level of a single activity that is related to that cost is a straight line within the relevant range.
Once linearity is established, there are three possible types of linearity:"

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Definitions:

Pure Strategy

Strategy in which a player makes a specific choice or takes a specific action.

Optimal Response

Optimal response is a strategy that maximizes a player's benefits given the strategies chosen by others, commonly used in game theory.

Nash Equilibrium

A concept in game theory where no player can gain by unilaterally changing their strategy if the strategies of others remain unchanged.

Pure Strategy

In game theory, a strategy where a player consistently chooses a specific action.