Which costs increase with the increase in production output?

When production output increases, variable costs are the costs that rise correspondingly, as they are directly linked to the level of production. This includes expenses such as raw materials, labor directly involved in production, and utilities that vary with production levels. As a business produces more goods, it needs to spend more on these factors of production, leading to an increase in variable costs.

In contrast, fixed costs, such as rent or salaries of permanent staff, do not change with the level of output. Opportunity costs refer to the potential benefits lost when choosing one alternative over another, which also remains unchanged with increased production unless the choices available shift. Sunk costs are expenses that have already been incurred and cannot be recovered, thus being unaffected by current or future levels of production. Therefore, variable costs are the only costs that directly increase with higher production output.