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Variable costs are those expenses of production which vary or change directly with the level of output. If out is expanded they increase and decrease when the output is reduced. At zero production there are no variable costs. Expenses on raw materials, power, casual labour etc are the examples of variable costs. They are also known as 'prime costs' as without raw - materials (variable costs) production is simply not possible here

Figure: Variable costs curve.

In Figure, here output is shown on X-axis and variable costs on Y-axis. Here, At OA output variable costs are = AB, when the output expands from OA to OC the variable costs increase from AB to CD.

Note: At zero production, there are no variable costs. The variable costs curve passes through the origin. The shape of the variable costs curves seem itself to the operation of the laws of returns. They increase initially at a diminishing rate, then for a while it at constant rate and beyond that an increasing rate.

In figure, variable cost curve is upward sloping, but at initial, upto point B, its slope decrease gradually showing the marginal productivity of variable factors is increasing. After B, the slope of variable cost curve increases gradually. It shows that now their marginal productivity is diminishing.

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