Average variable cost

In economics, average variable cost (AVC) is a firm's variable costs (VC; labour, electricity, etc.)

divided by the quantity of output produced (Q):

A firm would choose to shut down if the price of its output is below average variable cost at the profit-maximizing level of output (or, more generally if it sells at multiple prices, its average revenue is less than AVC).

By not producing, the firm loses only the fixed costs.

As a result, the firm's short-run supply curve has output of 0 when the price is below the minimum AVC and jumps to output such that