Variable Costs
Definition
Variable costs are expenses that change in direct proportion to the level of production or output. They vary depending on the quantity of goods or services produced.
Analogy
Think of variable costs like a ride-sharing service. The more people you pick up and drop off, the higher your expenses will be because you need to spend more on gas and maintenance for your car.
Related terms
Fixed Costs: Fixed costs are expenses that do not change with the level of production. They remain constant regardless of how many units are produced.
Marginal Cost: Marginal cost refers to the additional cost incurred by producing one more unit of a good or service.
Average Variable Cost (AVC): AVC is calculated by dividing total variable costs by the quantity of output produced, giving an average measure of variable cost per unit.
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