Fixed cost
Also called: Overhead cost, Supplementary cost, Total fixed cost, TFC · Topic: Production Function, Returns and Costs · NCERT: Class 12, Ch 3 "Production and Costs"
Meaning
Fixed cost (TFC) is what a firm pays for its fixed inputs in the short run. Fixed inputs are the ones it cannot change quickly, such as plant or machinery. It stays the same at every level of output, even zero, so its curve is a horizontal line. It is also called overhead cost or supplementary cost. In the long run all inputs can be changed, so there is no fixed cost.
Example
Examples include shop rent, interest on loans, salaries of permanent staff, insurance, licence fees and depreciation. In NCERT's Table 3.3, TFC is ₹20 whether the firm makes 1 unit or 10.
Don't confuse with
- Sunk cost: this money is already spent and cannot be recovered. A fixed cost does not change with output, but it can be avoided in the long run or on exit. For example, rent stops when the lease ends.