What typically increases as a business's level of production rises?

As a business's level of production rises, variable costs typically increase. Variable costs are those expenses that fluctuate directly with the level of production or sales volume. Examples include costs for raw materials, direct labor, and utilities that are dependent on the amount of product being manufactured.

When production increases, more materials are needed, which directly raises the total variable costs. For instance, a manufacturing company producing more units will require more raw materials and will incur higher labor costs, as more workers or overtime may be necessary to meet the production targets.

In contrast, fixed costs remain constant regardless of production levels. These include expenses such as rent, salaries, and insurance, which do not change with the increase or decrease in the volume of goods produced. Equity finance pertains to financing methods and is not inherently linked to production levels. Liquidity refers to a company’s ability to meet short-term obligations and can be influenced by many factors beyond just levels of production. Thus, increasing production primarily affects variable costs.