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Average Variable Cost
Practical Law Glossary Item 5-511-0109 (Approx. 3 pages)
Glossary
Average Variable Cost
A measure of cost calculated by dividing variable costs by the total output. Variable costs vary directly with output and may include:
- Costs of intermediate raw materials.
- Wages of employees who are paid by the hour.
- Costs of utilities.
- Depreciation of capital inputs.
Generally, rent is a fixed cost and not a variable cost.
Courts sometimes use average variable cost, instead of marginal costs, as a measure of cost in predatory pricing cases to determine whether a defendant has priced below its costs. Average variable cost plays a similar role in primary line competitive injury cases under the Robinson Patman Act.