Topics
Average Variable Cost (AVC)
Average variable cost (AVC) is a concept in economics that refers to the variable cost of producing a product or service divided by the quantity of output. Variable costs are costs that vary with the level of production, such as raw materials, labor, and energy. AVC is calculated by dividing the total variable cost by the quantity of output.
Here's an example:
- A company produces widgets, and the total variable cost of producing 100 widgets is $500.
- The AVC would be $5 per widget (500 / 100).
- If the company produces 200 widgets, and the total variable cost is $800, the AVC would be $4 per widget (800 / 200).
- AVC is an important concept in economics because it can help businesses understand how changes in production volume affect their costs. It's also used to calculate other important metrics such as the average total cost and the marginal cost.