Variable costs (VC) are business expenses that change in direct proportion to how much a company produces. As production levels go up, these costs increase; as production levels go down, these costs decrease.

Key characteristics:

• These costs change based on output levels in the short run.
• If production is zero, these costs are also zero.
• Common examples include raw materials, direct labour, and electricity used for machinery.

Relationship with output:

• Total Variable Cost (TVC) is calculated as: Total Cost (TC) minus Fixed Cost (FC).
• Average Variable Cost (AVC) is: Total Variable Cost / Quantity produced.
• Marginal Cost (MC) is: Change in Total Variable Cost / Change in Quantity.

Short-run patterns:

1. Initially, total variable costs rise slowly due to efficient production (increasing returns).
2. Later, they rise more quickly as production becomes harder to manage efficiently (diminishing returns).
3. The Marginal Cost (MC) curve usually forms a U-shape, meaning it falls at first and then starts to rise.