Definition of Avoidable Cost: A cost that can be avoided by not producing a particular good. For example, if you are building cars, avoidable costs would be the raw materials.
If you stopped producing a car, you would no longer have to pay for the raw materials such as steel and aluminium. However, other costs of a firm may be unavoidable, at least in the short term. For example, the firm still has the fixed costs such as rent and paying some safety workers.
For this reason, avoidable costs are often variable costs.
Related concepts
- Cost Curves
- Sunk costs – costs that cannot be recovered
- Variable costs