Average variable cost
In economics, average variable cost (AVC) is a firm's variable costs (labour, electricity, etc.) divided by the quantity of output produced. Variable costs are those costs which vary with the output level:
where = variable cost, = average variable cost, and = quantity of output produced.
A firm would choose to shut down if average revenue is below average variable cost at the profit-maximizing positive level of output. Producing anything would not generate revenue significant enough to offset the associated variable costs; producing some output would add losses (additional costs in excess of revenues) to the costs inevitably being incurred (the fixed costs). By not producing, the firm loses only the fixed costs.
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