Fixed Cost

Fixed costs are expenses that do not vary with production levels, so they are incurred regardless of whether a business is producing anything or not. Here are some examples of fixed costs:

  • Rent or mortgage payments on a business's facilities
  • Insurance premiums for the business
  • Depreciation on equipment and machinery
  • Salaries for administrative staff
  • Interest payments on loans
  • Advertising and marketing expenses
  • Licenses and permits

These costs are considered "fixed" because they do not change based on the level of production or sales. They remain constant over time and are necessary for the business to operate. Because they are not directly related to production, they are not included in the calculation of marginal cost of production.

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