What is Fixed Cost ?
Fixed cost itself mean cost is fixed whatever the situation of the business or output of the business. whether the is more production or less production of the goods, fixed cost is constant, fixed and will not change. Even in case the production or output of the firm is stopped, fixed cost must be faced by the firm.
Example:- (Rent, salaries, Interest on capital) these must be paid by the firm even if there zero production and these overheads will be constant and do not increase or decrease with the change in the volume of production.
During lockdown for pandemic Covid-19, many business have been shutdown around the world due to incurring on fixed cost and no revenues from the business. Hence fixed cost cannot be avoided at any point of time after establishing any business an owners should always first bare in mind about fixed cost like interest on capital, rent and salaries of the staff so as to run the business smoothly for long run.
Illustration:-
Fixed Cost schedule table
If you observe the fixed cost schedule table, one can easily understand what is fixed cost in the economics. When there are zero units produced, there is fixed cost 1000/-, since fixed cost is constant and fixed cost does not change according to the output or production.
Therefore here the fixed cost is 1000/-, unlike variable cost which would be incurred if output is brought out. When the production is started with 1000 units, fixed cost remains same as 1000/- and thereupon fixed is constant even there is change / increase in the output.
Fixed Cost Curve - Graphical Presentation
Fixed Cost schedule table is presented in graphical presentation form so as as to understand easily about this concept. Output is shown on X axis and Fixed Cost is shown on Y axis. If we observe the Fixed Cost curve on Y axis, it is drawn parallel to X axis from left at 1000/- which means fixed will be constant at 1000/- even there is increase in out put or production. Hence Fixed Cost is independent and not related to output.
