The variable cost to produce a slice of cake is $1. The bakery wants to implement a two-part tariff. Per-unit-price the bakery should charge must be equal to the per unit cost i.e. $1.
What is a variable cost?
Variable costs are company costs that change in proportion to how much the company produces or sells. Variable costs rise or fall based on a company's volume of production or sales—they rise as production rises and fall as production falls.
Examples of variable costs include a manufacturing company's cost of raw materials and packaging—or a retail company's credit card transaction fees or shipping costs that rise or fall with sales. Variable costs can be compared to fixed costs.
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