Average variable cost
In economics, average variable cost is a firm's variable costs divided by the quantity of output produced. Variable costs are those costs which vary with the output level:
where = variable cost, = average variable cost, and = quantity of output produced.
Average variable cost plus average fixed cost equals average total cost:
A firm would choose to shut down if average revenue is below average variable cost at the profit-maximizing positive level of output. Producing anything would not generate revenue significant enough to offset the associated variable costs; producing some output would add losses to the costs inevitably being incurred. By not producing, the firm loses only the fixed costs.
