This cost function relates the average variable cost, which may be defined as the average cost per unit of production, to the units of output in the short run. The short run is defined as the period of time during which at least one factor of production is fixed, such as labor or physical capital. A manufacturer wants to maintain an average variable cost lower than the market price of the manufactured item.
The short-run and long-run total cost functions relate the cost per unit of output against the quantity of goods produced. The long run is defined as the period of time in which no factor units of production are fixed, while the short run involves at least one unit of production as fixed. The difference between the long-run and short-run functions is that the long run allows for a variety of capital to labor combinations, while the the short run generally allows a very limited number of combinations.
Calculation of cost functions vary, although most tend to multilply the total fixed units of production or costs and add them to the variable factors of production.