Average variable cost
Average variable cost (AVC) equals Total Variable Cost ÷ Quantity (TVC ÷ Q). It represents the variable cost per unit and initially declines due to increasing returns, then rises due to diminishing returns.
Real World
In Amazon's fulfilment centres, AVC initially falls as warehouse staff specialise in picking or packing, but rises when overtime and agency workers are needed during peak periods like Black Friday.
Exam Focus
Explain AVC's U-shape using diminishing returns — don't just describe it; state the underlying cause.
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