Which of the following best describes the relationship between variable costs and output in marginal analysis?

• A. Variable costs remain constant regardless of output.
• B. Variable costs increase as output increases.
• C. Variable costs decrease as output increases.
• D. Variable costs are unrelated to changes in output.

Answer: (B)

Verified step by step guidance

1. Understand the definition of variable costs: these are costs that change directly with the level of output produced. Examples include raw materials and direct labor.
2. Recall that in marginal analysis, we focus on how costs change when output changes by one additional unit.
3. Recognize that since variable costs depend on output, increasing output will cause variable costs to increase, because more inputs are needed to produce more units.
4. Contrast variable costs with fixed costs, which remain constant regardless of output, to clarify why variable costs do not stay constant.
5. Conclude that the relationship between variable costs and output is positive: variable costs increase as output increases.