Fixed Costs
Definition
Fixed costs are expenses that do not change with the level of production or sales. They are incurred regardless of whether any units are produced or sold.
Analogy
Fixed costs can be compared to rent for an apartment. No matter how many roommates you have or how much you use your apartment, you still have to pay the same amount each month.
Related terms
Variable Costs: Variable costs are expenses that change with the level of production or sales. They increase as more units are produced or sold.
Total Costs: Total costs include both fixed costs and variable costs. It represents the sum of all expenses incurred in producing a certain level of output.
Average Fixed Cost: Average fixed cost is calculated by dividing total fixed cost by the quantity of output produced. It shows how much each unit's share contributes towards covering fixed costs.
"Fixed Costs" appears in:
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