Final answer:
The best description of relevant costs is future costs that differ between competing decision alternatives. These costs are essential for decision-making as they influence the outcome directly, unlike sunk costs. Relevant costs are tied to the variables of each specific decision scenario.
Step-by-step explanation:
The best description of relevant costs is b. future costs that differ between competing decision alternatives. Relevant costs are important to consider when making business decisions because they represent the costs that will be directly affected by the decision at hand. Unlike sunk costs, which are costs that have already been incurred and cannot be recovered, relevant costs are prospective and variable, depending on the decision made. For instance, if debating between two projects, the relevant costs are those that would be incurred by choosing one project over the other and are not present in both options.
Understanding opportunity cost is essential in this context, as it refers to the most desirable alternative that is foregone when a decision is made. Opportunity cost varies from person to person as preferences and circumstances differ.
In the short-run perspective with respect to a firm's costs, it's important to distinguish between fixed costs and variable costs. Fixed costs are considered sunk costs and should not affect future economic decisions. Variable costs, on the other hand, are relevant as they can change with the level of output and thus impact the marginal cost of production.