Overview
Variable Costs are costs that increase with each additional unit of product produced. The most straightforward example is the raw material costs that go into producing a physical product. As production is increased, raw material costs will increase proportionately.
Many costs that are usually classified as variable are actually costs that are fixed over a set of ranges (see above). For example, labor is relatively fixed. If a firm increases production by a single unit of the product, this likely will not require a whole new employee. And a firm cannot hire half an employee. This means that when production is raised by a single unit, the current employees are usually expected to work just a little harder.
This works only up to a point, at which point management will have to hire new talent. As such, labor costs look more like a staircase than a smooth upward sloping curve. As a general rule, variable costs can look like fixed costs on a small enough scale, and fixed costs can appear to be variable costs on a large enough scale.