Variable costs ______ production volume.

• A. increase as production volume increases
• B. are unrelated to production volume
• C. decrease as production volume increases
• D. remain constant regardless of production volume

Answer: (A)

Verified step by step guidance

1. Understand the definition of variable costs: Variable costs are costs that change directly with the level of production output.
2. Recall that as production volume increases, the total amount of inputs like raw materials, labor hours, or energy used typically increases, causing variable costs to rise.
3. Contrast variable costs with fixed costs, which remain constant regardless of production volume, to clarify the difference.
4. Analyze each option: 'increase as production volume increases' aligns with the definition of variable costs, while the others contradict it.
5. Conclude that variable costs increase as production volume increases because they vary directly with the quantity produced.