variable costs


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Related to variable costs: direct costs, Semi Variable Costs

Variable Cost

A cost to a person or business that varies over time according to a number of factors. For example, a dental office must buy dental supplies, which usually cost about the same. This is a fixed cost. On the other hand, the dental office must also pay the electric and gas and water bills, which may fluctuate considerably. This is a variable cost.

variable costs

any COSTS that tend to vary directly with the level of output. They represent payments made for the use of variable factor-inputs, notably raw materials and direct labour.

A firm will leave a market if in the short run it cannot earn sufficient SALES REVENUE to cover its total variable cost. If it can generate enough total revenue to cover total variable cost and make some CONTRIBUTION towards total FIXED COST then it will continue to produce in the short run even though it is still making a loss.

Variable costsclick for a larger image
Fig. 195 Variable costs.

variable costs

any COSTS that tend to vary directly with the level of output. They represent payments made for the use of VARIABLE FACTOR INPUTS (raw materials, labour, etc.).

The SHORT-RUN total variable cost curve (TC) in Fig. 195 (a) has an S shape because at low levels of output total variable costs rise slowly (because of the influence of increasing RETURNS TO THE VARIABLE FACTOR INPUTS), while at high levels of output total variable costs rise more rapidly (because of the influence of DIMINISHING RETURNS to the variable input). Average variable costs (AVC in Fig%. 195) fall at first (reflecting increasing returns to the variable input), but then rise (reflecting diminishing returns to the variable input).

In the THEORY OF MARKETS, a firm will leave a market if in the short run it cannot earn sufficient TOTAL REVENUE to cover its total variable cost. If it can generate enough total revenue to cover total variable cost and make some CONTRIBUTION towards total FIXED COST, then it will continue to produce in the short run even though it is still making a loss. See also MARKET EXIT, LOSS MINIMIZATION.

References in periodicals archive ?
* incorporating both fixed and variable cost of activities; and
Lower operating leverage are positive indicator which can be result from low fixed to variable cost component in compensation.
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Thus for every $1 in variable cost, where all variable costs are included, the following is true about markup percentage and contribution margin:
All variables are transformed into natural log units (a Cobb-Douglas functional form), and linear homogeneity with respect to input prices is imposed by dividing variable cost and the wage rate by the price of oats.
According to the sensitivity analysis, these variables are total revenue (the sum of electrical and thermal energy sale revenues), variable costs (natural gas procurement cost), initial investment and discount rate.
* Total Variable Cost: variable cost is the cost of production inputs required for performing the production process.
Production at prices below average variable costs of each unit sold generates a loss totaling all fixed costs and at least a part of variable costs.
Considered a mixture of fixed and variable costs as previously discussed.
The CFTC has published a ruling by its general counsel which says what the agency "really meant." It essentially says the "however paragraph" was not intended to apply to agreements, contracts or transactions in which the buyer pays for a commodity in two parts, paying the seller's fixed/known costs upfront and the seller's variable costs associated with that commodity later once those costs are established.
The Gross margin analysis was used owing to the fact that in traditional agriculture, apart from the fact that very little fixed inputs are used, the practice of intercropping with different crops maturing at different times further complicates the estimation of the fixed costs that can be assigned to each crop harvested unlike the variable costs which are more reliable and easier to allocate.

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