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Average variable cost (AVC) is an economics term which means total variable cost per unit of output obtained when a firm engages in short-run production. AVC can be found in two ways. The first method is by dividing total variable cost by the quantity of output. The second method is by subtracting average fixed cost from average total cost. Variable costs usually vary with output of the firm. Generally, the AVC curve will be u-shaped because, initially the average variable costs of a firm will reduce with the presence of increasing returns. Later, when the return starts to diminish the average variable cost will begin to increase.