Variable Cost for Home and Business
Variable costs are important to our individual lives. For example, an important variable cost for many of us is the cost of gasoline. The cost of gasoline is variable to the number of miles driven and the gas efficiency of our vehicles. Thus, when the price of gasoline increases, the demand for smaller, fuel-efficient vehicles rises. Moreover, during periods of high gasoline prices, there is an incentive to drive less, even to the point of living closer to work or school. When the cost of gasoline falls, fuel efficiency and driving preferences become less important. This is seen with the slope of the variable cost line on the total variable cost graph. The slope is the variable cost per unit, as was shown in Exhibit 1. The slope of the variable cost line will influence the importance of the underlying activity base for decision making. Thus, a steep slope increases importance, while a gradual slope lessens importance.
Provide an example of a variable cost that is important in our lives. Explain the effect.
