What is the function of variable cost?

Function with variable costs is one of the two main costs in the company. Accountants or economists monitor this function because they relate to production curves or total costs. The other half of this equation is the fixed costs of the company, which can also present direction. In short, the function of variable cost changes with any change in the company's production, while fixed costs are not. In economic analysis there are many different formulas for assessing variable costs in the company's production system. AVC means average variable costs, another important function of this cost function. These two shortcuts allow companies to calculate different formulas that monitor the total average process per process marked AC. Fixed costs also bear similar abbreviations, with FC representing fixed costs and average fixed costs AFC. These shortcuts make up the remaining parts of the formula.

initialThe formula for determining average costs is the association of total fixed costs and total variable costs. Distribution of this number Q - which means quantity - creates average cost of a given product or process. Changing this formula is to associate average fixed costs and average variable costs of the product or process. This latter formula brings the same result as the former formula, average costs. The function of variable costs here plays an important role in the analysis of the decreasing income of the company.

Society often seeks to achieve equilibrium point using an average cost formula. The purpose is to find the maximum production point where the total average costs equal the total average average income. The function of variable cost is necessarily increasing when the company seeks to increase its production production. As a Company, it increases its total average costs, reaches its planned equilibrium point. However, at some point the variable costs become drag the profits of the companyof the way.

When the company continues to increase its variable costs with ruthless abandonment, it will soon enter the process of reducing return. This happens because no matter how much money the company spends on increasing production - and its related function at variable costs - the company does not increase profits. The main reason comes from the demand of consumer, which has resulted in overcoming without increasing sales. Additional costs simply increase the costs of the company without the hope of their settlement of future income.