Costs, Fixed versus Variable

Costs refer to the economic input required to achieve a certain outcome, that is, the amount one spends to produce a service or a product, or the value imputed to a resource. Costs are distinguished from charges, which are the prices of services and do not reflect the actual costs of all [Page 231]inputs. Costs are usually divided into fixed and variable costs. With regard to healthcare, fixed costs are expenses that do not vary with physician care decisions or treatment—such as rent, salaries, mortgage payments, and fire insurance— and that do not vary with the level of patient activity, or products, and once sunk, they cannot be easily recovered. They are also called sunk costs because they are beyond the control of the entrepreneur. ...