variable

(noun)

something whose value may be dictated or discovered.

Related Terms

Examples of variable in the following topics:

  • Types of Costs

    • It consists of variable costs and fixed costs.
    • Total cost is the total opportunity cost of each factor of production as part of its fixed or variable costs .
    • Variable cost (VC) changes according to the quantity of a good or service being produced.
    • In the long run, the cost of all inputs is variable.
    • This graphs shows the relationship between fixed cost and variable cost.

  • Costs and Production in the Short-Run

    • Often the producer will know the costs at a few levels of output and must estimate or calculate the production function in order to make decisions about how many units of the variable input to use or altering the size of the plant (fixed input).
    • Variable Cost (VC) is the quantity of the variable input times the price of the variable input.
    • Sometimes VC is called total variable cost (TVC).
    • Average Variable Cost (AVC) is the VC divided by the output, AVC = VC/Q.
    • It is the variable cost per Q.

  • Shut Down Case

    • A firm will implement a production shutdown if the revenue from the sale of goods produced cannot cover the variable costs of production.
    • The shutdown rule states that "in the short run a firm should continue to operate if price exceeds average variable costs. "
    • When determining whether to shutdown a firm has to compare the total revenue to the total variable costs.
    • If the revenue the firm is making is greater than the variable cost (R>VC) then the firm is covering it's variable costs and there is additional revenue to partially or entirely cover the fixed costs.
    • A firm that exits an industry does not earn any revenue, but is also does not incur fixed or variable costs.

  • Short Run Firm Production Decision

    • However, variable costs and revenues affect short run profits.
    • An example of a variable factor being increased would be increasing labor through overtime.
    • Continue producing if average variable cost is less than price per unit.
    • Shut down if average variable cost is greater than price at each level of output.
    • Revenue would not cover the variable costs associated with production.

  • Graphical Representations of Production and Cost Relationships

    • The short-run, total product function and the price of the variable input(s) determine the variable cost (VC or TVC) function.
    • Variable cost (VC) will increase at an increasing rate (MC will be rising).
    • A "rational" producer would cease to add variable inputs when those additions reduce output.
    • The total variable cost is determined by the price of the variable input and the TP function.
    • The average variable cost is simply the variable cost per unit of output (TP or Q):

  • Economic Costs

    • Total cost (TC): total cost equals total fixed cost plus total variable costs (TC = TFC + TVC) .
    • Variable cost (VC): the cost paid to the variable input.
    • Variable input is traditionally assumed to be labor.
    • Average variable cost (AVC): variable costs divided by output (AVC = TVC/q).
    • The average variable cost curve is normally U-shaped.

  • Math Review

    • Variables are letters that represent general, non-specified numbers.
    • Dependent Variable: The output or the effect variable.
    • It is the variable whose change you are interested in seeing when you change other variables.
    • Independent or Explanatory Variable: The inputs or causes.
    • These are the variables that are changed in order to see how they affect the dependent variable.

  • Short Run and Long Run Costs

    • Fixed costs have no impact of short run costs, only variable costs and revenues affect the short run production.
    • Variable costs change with the output.
    • Examples of variable costs include employee wages and costs of raw materials.
    • The short run costs increase or decrease based on variable cost as well as the rate of production.
    • In the short run these variables do not always adjust due to the condensed time period.

  • Relationship of MC and AVC to MPL and APL

    • In the third panel the related marginal cost (MC) and average variable cost (AVC) function are shown.
    • Each of these points identifies a level (an amount) of the variable input (L) and a quantity of output.
    • At this level of input use the output (QH) has a minimum of the average variable cost (AVC).

  • Aggregate Production

    • Stage 1: the variable input is being used with increasing output per unit.
    • Stage 3: variable input is too high relative to the available fixed inputs.
    • The output of both fixed and variable input declines.
    • The long-run growth of a firm can change the scale of operations by adjusting the level of inputs that are fixed in the short-run, which shifts the production function upward as plotted against the variable input.