A linear cost function captures cost behavior that, when plotted on a graph against activity levels, results in a straight line. This function simplifies the relationship between costs and activity levels, essential for cost estimation and budgeting in business.
A step-function cost refers to an item of expenditure where costs increase in a step-like pattern with rising activity levels. Unlike linear cost functions, step-function costs do not change continuously but incrementally at certain thresholds of activity.
