How do you figure out the Variable Cost?

Question

I am taking a college microeconomics class and do not understand how to figure out the variable cost. I found an equation that said VC= FC-BE (fixed cost minus break-even point=Variable Cost) however I learned that the to calculate the BE you look at the lowest Average Total Cost (ATC), but in order to figure out the ATC you do Total cost divided by Quantity, but then I don't know how to do that because I cannot figure out the VC. (TC equation is FC+VC). Any help would be greatly appreciated!

Answer 1

Hi. First, take a breath. Economics is not easy and things can get confusing fast.



Now, there are some things you need to consider: (1) Where is your information coming from? Usually in a beginning micro-economics class there is a table listing the various costs at specific quantities. However, sometimes the information is listed as an equation. Keep that in mind when you're ready to start computing. (2) Are you trying to calculate TOTAL variable cost or AVERAGE variable cost? The difference is a major deciding factor for which information you use.



Ok. We've got that, so here's the easy break-down:

A. Total Variable Cost = total cost of producing x units of goods - total cost of producing 0 goods. That is easy enough to calculate. Use your table or equations to get the amounts you need.

B. Average Variable Cost = total variable cost / number of units. This one is a little bit trickier because you must calculate total variable cost first.

C. Fix cost is the cost incurred when producing 0 units. This cost usually remains constant and is independent of production. Examples include rent, utilities, building maintenance, etc. Using the table this cost is found next to 0 quantity. Using an equation, simply substitute 0 for your variable (x, y, Q, etc.)



Finally, I think you're a little confused about the break-even point. This occurs when the selling price of a specific quantity matches all costs. It means the product can now begin to make a profit. To calculate this divide the fixed cost by the revenue per unit (selling price per unit) less the variable cost.



Understand it better now? I really hope this helps. If not, or just for extra clarification, take a look at the two sites listed in the reference section. I find About.com usually provides excellent explanations in very easy to follow formats. Plus, they use examples which I find helps. Good Luck! I know you can do this.

Answer 2

It really depends on what information is given. That might be a good place to start. If you're given other values like the FC or ATC, then you'll probably steer in the direction of the equation. If you've got information about the individual costs, then you've got to add up the right ones to get your answer. Variable costs include things that change based on how much you produce, like resource prices.



If you have a graph, then you can probably obtain information such as FC and ATC and MC and ATP and other stuff like that, which you could then use in the equations. I forget what the break even point on a graph is... I know it's where one line undercuts another, but I'm not sure what those two are. I think one might be marginal cost. I learned all of this about two months ago, so that's what I don't know the details anymore.

Answer 3

In economics, average variable cost (AVC) is a firm's variable costs (labor, electricity, etc.) divided by the quantity (Q) of output produced. Variable costs are those costs which vary with output.



where VC = variable cost, AVC = average variable cost, and Q = quantity of output produced.

Average variable cost plus average fixed cost equals average total cost:



In many or most contexts, average variable cost declines as the level of output increases at low levels of output, and then bottoms out and begins increasing as output increases further. Hence the curve depicting average variable cost is roughly U-shaped.