Which of the following is the best example of a variable cost?

a. monthly rent payments for a warehouse

b. annual property tax payments for a building

c. monthly wage payments for hired labor

d. annual insurance payments for a warehouse

The correct answer is option c.

Explanation:

In the production process, inputs such as raw materials, labor, machine, tolls, etc, are used to produce outputs. Among these factors, some are variable or can be changed in the short run while others are fixed or cannot be changed.

The cost incurred on the variable factors is called variable cost. It changes with the change in output level.

Among all the costs given above, the monthly wage payments to labor is a variable cost. It can be changed in the short run by changing the quantity of labor employed.

The rest of the costs such as property tax payments, insurance and, rent payments are fixed an do not change with the output level.