Variable cost example
As an example of variable cost, let’s assume that the UK was currently experiencing an economic recession. In this scenario, companies might expect that their variable costs would decrease on the back of reduced consumer demand.
This would mean that the company might need to cut jobs or buy in less of the materials that they use to make their products.
Alternatively, if there was currently a period of economic growth, companies might expect production to increase on the back of rising demand. As a result, a company would need to buy more materials and perhaps hire more workers to make their products. Because of this, variable costs would increase in line with an increase in demand.