Final answer:
Expenses that vary with production, such as material costs or labor, are known as variable costs and are critical in making economic decisions about future production or pricing, especially since they are subject to diminishing marginal returns.
Step-by-step explanation:
The subject in question pertains to the concept of costs within the realm of business economics, and specifically, it discusses expenses that vary with production which are most often seen as relevant costs. These costs are direct ramifications of production and can fluctuate based on the level of output generated. Typically in business economics, we categorize costs into two types: fixed costs and variable costs. Fixed costs, such as rent or the cost of machinery, are expenditures that remain constant regardless of the level of production. On the other hand, variable costs are those that change in direct proportion to the level of production, showing diminishing marginal returns. As production increases, variable costs initially decrease per unit. However, after a certain point, the marginal cost of producing additional units starts to rise, which must be considered in any economic decisions about future production or pricing.