Final answer:
Variable costs change with output level even though the rate per unit of variable cost remains constant.
Step-by-step explanation:
Variable costs are tied directly to the level of production or service delivery. When saying that the cost per unit of activity remains constant, we refer to the cost for each additional unit, such as labor hours or materials, not changing as quantity varies. However, because the total quantity of these inputs needed fluctuates with production volume, the total variable cost will change in relation to the total output. This is why the term variable cost is used. Even though the rate of these costs is steady on a per-unit basis, the total variable cost is directly tied to activity levels; more activity requires more variable input, which increases the total cost.
In production, an increase in the quantity of goods produced would usually require additional raw materials and labor hours, creating higher total variable costs.
Conversely, producing fewer goods would require less of these inputs, thereby decreasing the total variable costs. This property is the essence of why labor and raw materials are variable costs, as they are flexible and vary depending on the level of production or services provided.
Clear It Up: Regarding the difference in graphing total cost and average cost, we need to understand the units being measured. Total cost, fixed cost, and variable cost are measured in total dollars, reflecting the entire cost over the output quantity. In contrast, marginal cost, average cost, and average variable cost are measured as costs per unit, such as dollars per haircut. Therefore, they are not represented on the same graph because they are measured in different units: total dollars versus dollars per unit of output.