A fixed cost in economics is the cost of an input the firm cannot vary inside the time horizon being discussed, so its total does not change when output changes. That horizon makes it a short-run idea rather than a permanent property of the cost. The short run is the period of time during which at least some factors of production are fixed, and the long run is the period of time during which all factors are variable (OpenStax, Principles of Microeconomics 3e, Production in the Short Run). No costs are fixed in the long run (OpenStax, Costs in the Long Run).
The Cost of the Fixed Factor
Economics names the cost after the input, not after the bill. Fixed costs are the costs of the fixed inputs, and because fixed inputs do not change in the short run, fixed costs are expenditures that do not change regardless of the level of production (OpenStax, Costs in the Short Run).
The line between the two horizons is drawn by which inputs can still be changed, not by a count of months. The long run depends on the specifics of the firm in question and is not a precise period of time, and with a one-year lease on a factory the long run is any period longer than a year, since after a year the lease no longer binds (OpenStax, Costs in the Long Run). Sorting a given cost onto one side or the other in practice is a test on its own driver, run in fixed or variable costs, and the band of activity a fixed total holds inside is covered in fixed expenses.
Total Fixed Cost Is Where the Total Cost Curve Starts
Total fixed cost is the part of the total already there before anything has been produced. In the textbook’s barber shop the fixed costs of operating the shop are $160 per day, and at zero production those fixed costs are still present (OpenStax, Costs in the Short Run). On a graph that is the height at which the total cost curve begins, with variable costs stacked above it. How the two halves add together is worked through in total cost formula.
Why the Per-Unit Fixed Cost Only Falls
Average fixed cost is total fixed cost divided by output. The numerator does not move with output, so every increase in the denominator returns a smaller figure than the last, and the result keeps approaching zero without reaching it while any fixed cost remains.
That makes it the odd one out among the per-unit measures. The average total cost curve is typically U-shaped, the average variable cost curve is also typically U-shaped, and the marginal cost curve is upward-sloping (OpenStax, Costs in the Short Run). The other three all rise somewhere, the two averages after their U and marginal cost as diminishing marginal returns set in. The fixed share never does, inside the horizon where the fixed input is genuinely fixed. What the next unit costs ignores that share entirely until a step arrives, which is the line drawn in marginal cost.
Fixed Costs Inside a Practice
A firm’s fixed base is fixed against this season’s return count inside the range it was set for, and against nothing else. The office lease, the salaried seats and the annual software licenses hold their totals whether the work lands in January or in April. That is short-run behavior, not permanence. Each of those inputs comes up for renewal, and at renewal the firm chooses its fixed level instead of living inside one, which is the long run arriving for that input.
What a Fixed Cost Is Not
A fixed cost is not automatically a sunk cost. Fixed costs are often sunk costs that a firm cannot recoup (OpenStax, Costs in the Short Run), but sunk turns on whether the money can be got back rather than on how a total behaves, the boundary held in sunk costs.
It is also not the whole of the economist’s cost base, which counts implicit costs the books never record, the split set out in explicit vs implicit cost.
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