Cost of production refers to the total amount of money spent on producing goods or services. It is an important concept in business and economics as it directly affects the profitability and competitiveness of a company. The cost of production can be calculated by considering various factors such as the price of inputs, labor, overhead expenses, and other related costs.

The correct answer to the question is option 'B' - Expenditure on inputs to produce output. This means that the cost of production is determined by the amount of money spent on the resources or inputs required to produce a certain quantity of output.

Let's break down the answer and explain it in detail:

1. Expenditure on inputs: This refers to the amount of money spent on the resources or inputs needed for production. Inputs can include raw materials, labor, machinery, utilities, and other necessary resources. The cost of these inputs is a significant component of the total cost of production.

2. Relationship with output: The cost of production is directly related to the quantity of output produced. As the level of production increases, the cost of inputs also increases, resulting in a higher overall cost of production. Conversely, if the level of production decreases, the cost of inputs decreases, leading to a lower cost of production.

3. Cost control: Understanding the cost of production is crucial for businesses to effectively manage their expenses. By analyzing the cost of inputs, companies can identify areas where costs can be reduced or optimized. This can include finding more cost-effective suppliers, improving production processes, or utilizing resources more efficiently.

4. Impact on pricing: The cost of production plays a significant role in determining the price of the final output. Businesses need to set prices that not only cover the cost of production but also generate a profit. If the cost of production increases, businesses may need to adjust their prices accordingly to maintain profitability.

In conclusion, the cost of production is the expenditure on inputs required to produce a certain quantity of output. It is an essential factor for businesses to consider in order to manage expenses, set prices, and ensure profitability. By understanding and controlling the cost of production, companies can improve their competitiveness and financial performance.