Economics Short Run Vs Long Run Costs Questions
Average variable costs in the short run refer to the average cost of producing each unit of output in the short run, considering only the variable costs. Variable costs are expenses that change with the level of production, such as raw materials, labor, and energy. Average variable costs are calculated by dividing the total variable costs by the quantity of output produced. In the short run, average variable costs tend to decrease initially due to economies of scale, but eventually start to increase as diminishing returns set in and additional units of output require more variable inputs.