1. The minimum cost of producing a given output level expressed as a function of input prices. Assume there are two inputs, capital, K, and labour, L, with cost-per-unit of r and w respectively. Let the production function relating inputs to output, Y, be given by Y = f  (K, L). The cost function is obtained from the solution to the minimization problem

Solving the minimization provides the factor demand functions K = K(r,w,Y) and L = L(r,w,Y). Substituting these back into the objective gives the cost function

2. The minimum cost for a consumer of achieving a given utility level. See also expenditure function.