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Information > Financial Terms > This page Fixed Cost Fixed costs are incurred in the short run (the long run being defined as a period of time long enough for all costs to be variable). Fixed costs are those costs that are invariant to changes in the level of output. For a firm, such costs include rent and payments on capital equipment. Capital, as opposed to labor, is generally considered that fixed factor of production in the short run. Total fixed cost (TFC) represents all payments to factors of production that are invariant to changes in output. Average fixed cost (AFC) equals total fixed cost divided by output. As output increases, average fixed cost will continually decrease. The figure below illustrates these concepts. Back to Information |