Lesson plan
Average variable cost
In economics, average variable cost (AVC) is a firm's variable costs (VC; labour, electricity, etc.) divided by the quantity of output produced (Q): AVC = \frac{VC}{Q} Average variable cost plus average fixed cost equals average total cost (ATC): AVC + AFC = ATC. A firm would choose to shut down 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 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 costs). By not producing, the firm loses only the fixed costs. As a result, the firm's short-run supply curve has output of 0 when the price is below the minimum AVC and jumps to output such that \text{P = MC(Q)} for higher prices, where \text{MC} denotes marginal cost.
Article summary
In economics, average variable cost (AVC) is a firm's variable costs (VC; labour, electricity, etc.) divided by the quantity of output produced (Q): AVC = \frac{VC}{Q} Average variable cost plus average fixed cost equals average total cost (ATC): AVC + AFC = ATC. A firm would choose to shut down 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 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 costs). By not producing, the firm loses only the fixed costs. As a result, the firm's short-run supply curve has output of 0 when the price is below the minimum AVC and jumps to output such that \text{P = MC(Q)} for higher prices, where \text{MC} denotes marginal cost.
Key claims
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Discussion questions
- Summarise the article in your own words. Which single claim would you verify first, and why?
- Which claim in this article is most likely to be revised as the sources update? How would you check its current status?
- If two sources disagreed about one of these facts, what would you need in order to trust one over the other?
Bibliography
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Key claims and bibliography are generated from the same tracked claims and sources as the article page.