A cost that changes as output changes

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Question and options:
Q: A cost that changes as output changes
Options: a. Implicit Cost, b. Variable Cost, c. Fixed Cost, d. Explicit Cost, e. Sunk Cost

Option a: Implicit Cost. This refers to opportunity costs or costs that are not paid with money but represent the value of the next best alternative foregone. These are not necessarily tied to the level of output in a direct, measurable way and thus do not describe a cost that changes with output in the same observable sense as variable costs do. Hence this option is not correct for a cost that varies with output.

Option b: Variable Cost. Variable costs are defined as costs that vary directly with the level of production or output. As you produce more units, total variable costs increase; as you produce fewer units, total variable costs decrease. This matches the core concept of a cost that changes with output, making this the correct description.

Option c: Fixed Cost. Fixed costs remain constant regardless of the level of output within a relevant range. They do not change as production increases or decreases, which makes this option incorrect for a cost that changes with output.

Option d: Explicit Cost. Explicit costs are actual monetary payments made by a firm for inputs, such as wages, rent, and materials. These can be fixed or variable, but the term itself does not define the behavior of changing with output. Therefore this option does not specifically describe a cost that varies with output.

Option e: Sunk Cost. Sunk costs are costs that have already been incurred and cannot be recovered. They are independent of current or future production decisions and do not vary with current output, so this option is not appropriate for a cost that changes with output.

ECON 302 AL1 SP25: Inter Microeconomic Theory (Buckley, B)

A cost that changes as output changes

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