Which term describes costs that vary with the quantity of output produced?

• A. Fixed Costs
• B. Variable Costs
• C. Marginal Costs
• D. Sunk Costs

Answer: (B)

The main idea is how costs respond to how much you produce. Costs that vary with the level of output are called variable costs. As production increases, you need more materials, more direct labor, and higher utility usage, so the total variable costs rise with output. When you produce nothing, these costs are typically zero, which is the opposite of fixed costs that stay the same regardless of production. Fixed costs include things like rent or salaries that don’t change with how much you make. Marginal costs, by contrast, are about the extra cost of producing one more unit, which relates to how variable costs behave per additional unit, not the overall change in total costs. Sunk costs are past expenses that can’t be recovered and shouldn’t guide current production decisions.