The correct answer is: Both A and B.
Cost theory is the study of the costs that a firm incurs in producing its goods or services. These costs can be divided into two categories: fixed costs and variable costs.
Fixed costs are costs that do not change with the level of output. For example, a firm’s rent is a fixed cost, because it must pay the rent regardless of how much it produces.
Variable costs are costs that change with the level of output. For example, the cost of raw materials is a variable cost, because the firm will use more raw materials when it produces more goods.
Total cost is the sum of fixed costs and variable costs.
Average cost is total cost divided by the number of units produced.
Therefore, the cost theory is the study of total cost, which contains both fixed cost and variable cost.