Average variable cost, when combined with price, indicates whether or not a firm should shut down production in the short run. If price is greater than average variable cost, then the firm is able to pay all variable cost and a portion of fixed cost.f the result of this calculation is not readily obvious, click the [One] button. The average variable cost of two Stuffed Amigos might be a little less obvious, but not much. Click the [Two] button to reveal that the average variable cost is $4, which is $8 divided by 2 Stuffed Amigos.