Average Variable Cost

A measure of cost calculated by dividing variable costs by the total output. Variable costs vary directly with output and may include:

  • Costs of intermediate raw materials.

  • Wages of employees who are paid by the hour.

  • Costs of utilities.

  • Depreciation of capital inputs.

Generally, rent is a fixed cost and not a variable cost.

Courts sometimes use average variable cost, instead of marginal costs, as a measure of cost in predatory pricing cases to determine whether a defendant has priced below its costs. Average variable cost plays a similar role in primary line competitive injury cases under the Robinson Patman Act.

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