Fixed Cost

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  • An expenditure that does not vary with output. As a result, fixed cost does not intrinsically depend on output. It is cost incurred even when a firm does not produce anything, as for example, rental payments. Fixed cost is part of the total cost of a firm, and it could be estimated as the difference between total cost and variable cost (a cost that varies with output). Fixed cost may also be referred to as sunk cost because it is not an optional expense in the short run, when a firm cannot vary all its costs. For more information, see Boyes and Melvin (2002) and Case and Fair (2003).


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