Variable Cost
Plain definition
A cost that rises and falls with the quantity of output, such as raw materials, packaging, and hourly wages.
In economics
Variable costs (VC) are zero at zero output and increase as production expands, initially at a decreasing rate then at an increasing rate, mirroring diminishing returns. Together with fixed costs they make up total cost: TC = FC + VC.
Example
A bakery's flour, sugar, and packaging costs grow with every extra loaf baked, so they are variable costs.
Common confusion
Variable cost is not the same as marginal cost. Variable cost is the total of all costs that vary with output; marginal cost is the cost of one additional unit. AVC is derived from VC, but MC comes from the change in total cost.