Definition
- Variable costs
- Variable costs are the costs of the variable inputs, such as labour and raw materials, so they increase or decrease with output.
- Not to be confused with: Fixed costs
- Fixed costs are expenditures that do not change regardless of the level of production, because the fixed inputs behind them do not change in the short run.
Test yourself
What is the difference between variable costs and fixed costs?
Fixed costs stay the same whatever the firm produces in the short run; variable costs move up and down with output.