Final answer:
The statement is false; variable costs vary with output level, not directly with revenue. These costs include labor and raw materials which fluctuate based on production quantities.
Step-by-step explanation:
The statement that a variable cost varies in linear fashion with revenue is false. Variable costs change in relation to the level of output, not directly with revenue. Variable costs, such as labor and raw materials, increase or decrease depending on the quantity of goods or services produced. These costs are directly tied to production levels and are incurred as a direct result of producing a product or delivering a service.We calculate average variable cost (AVC) by dividing total variable costs by the quantity of output produced, which often results in a U-shaped curve. Hence, the AVC can be lower than the market price, which would mean the firm is profitable, excluding consideration of fixed costs. Therefore, it is essential to understand that variation in variable costs is associated with production volume rather than revenue.Consequently, it's crucial for businesses to manage their variable costs effectively as they adjust to changes in production volume to maintain profitability.