What do we call costs that vary with the level of output?

Costs that vary with the level of output are known as variable costs. These costs increase as production increases and decrease as production decreases. Common examples of variable costs include raw materials, direct labor, and any costs associated with the production process that change directly with the volume of goods or services produced.

Understanding variable costs is crucial for businesses as they impact pricing strategies, profit margins, and overall cost management. In contrast, fixed costs remain constant regardless of the output level and include expenses like rent or salaries of permanent staff, which do not fluctuate with the quantity produced. Total costs comprise both fixed and variable costs, while average cost is calculated by dividing total costs by the number of units produced. Thus, the term that specifically describes costs which change with output levels is variable costs.