Final answer:
Variable costs increase in direct proportion to volume, while fixed costs remain constant. Mixed costs combine both variable and fixed costs. Hence, the correct answer is option (1).
Step-by-step explanation:
Variable costs are the costs that increase in direct proportion to volume. These costs are incurred when producing a greater quantity of a good or service, such as labor and raw materials. They vary with the level of production and are usually represented as a per unit cost.
Fixed costs, on the other hand, do not change with the level of production and remain constant. Examples of fixed costs include rent for a factory or retail space. These costs are incurred regardless of the volume of output.
Mixed costs are a combination of variable and fixed costs. They consist of both costs that vary with production and costs that remain constant.