I don't think the cost of the iron would be an issue. More relevant would be the cost of maintaining the establishment necessary to imprison people plus the cost of removing individuals from the work force in a near-subsistence agricultural economy.
Looking through the various sets of edicts promulgated by Anglo-Saxon kings, the punishment for offences is almost entirely based on monetary fines. Apart from that, the major punishments are
a) declaration that the offender be 'outlaw' and killed by anyone with impunity.
b) mutilation
c) execution
'Imprisonment' was more confined to high-ranking individuals captured in war, or held as hostages against future good behaviour by their kinsfolk. But I don't think they were usually 'imprisoned' in the modern sense, so much as simply not permitted to leave the king's court.