# Average variable cost

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{{short description|Variable costs of production divided by total output}}
[[Image:Shortruncostcurves.jpg|thumb|400px|right|'''Short-run cost curves.'''
{{legend-line|solid grey|[Average cost](/source/Average_cost) (AC)}}
{{legend-line|dashed grey 1px|'''Average variable cost''' (AVC)}}
{{legend-line|solid grey 1px|[Average fixed cost](/source/Average_fixed_cost) (AFC)}}
 {{legend-line|dashed grey|[Marginal cost](/source/Marginal_cost) (MC; crosses the minimum points of both the AC and AFC curves)}}]]

In [economics](/source/economics), '''average variable cost''' ('''AVC''') is a firm's [variable cost](/source/variable_cost)s (VC; labour, electricity, etc.) divided by the quantity of [output](/source/output_(economics)) produced (Q):
<math display=block>AVC = \frac{VC}{Q}</math>

Average variable cost plus [average fixed cost](/source/average_fixed_cost) equals [average total cost](/source/average_total_cost) (ATC):
<math display=block>AVC + AFC = ATC.</math>

A firm would choose to [shut down](/source/shutdown_(economics)) if the price of its output  is below average variable cost at the profit-maximizing level of output (or, more generally if it sells at multiple prices, its [average revenue](/source/total_revenue) is less than AVC). Producing anything would not generate revenue significant enough to offset the associated variable costs; producing some output would add losses (additional costs in excess of revenues) to the costs inevitably being incurred (the [fixed cost](/source/fixed_cost)s). By not producing, the firm loses only the fixed costs.

As a result, the firm's short-run [supply curve](/source/Supply_(economics)) has output of 0 when the price is below the minimum AVC and jumps to output such that <math>\text{P = MC(Q)}</math> for higher prices, where <math>\text{MC}</math> denotes marginal cost.<ref>Mankiw, N. Gregory (2001) ''Principles of Microeconomics'', 2e, ch 14, p. 298.</ref>

==See also==
*[Variable cost](/source/Variable_cost)
*[Fixed cost](/source/Fixed_cost)
*[Cost curve](/source/Cost_curve)

==References==
{{Reflist}}

Category:Costs

{{economics-stub}}

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