The correct answer is C. Variable costs are costs that change with the level of production. For example, the cost of raw materials used to produce a product is a variable cost, because it will increase as more products are produced.
Option A is incorrect, because sunk costs are costs that have already been incurred and cannot be recovered. For example, the cost of purchasing a factory is a sunk cost, because it cannot be recovered even if the factory is no longer used.
Option B is incorrect, because fixed costs are costs that do not change with the level of production. For example, the cost of rent for a factory is a fixed cost, because it will remain the same regardless of how many products are produced.
Option D is incorrect, because marginal cost is the change in total cost resulting from the production of an additional unit of output. It is not a type of cost, but rather a measure of how costs change as production increases.