Fixed Cost
Plain definition
A cost that does not change with the quantity of output produced in the short run, such as rent or insurance premiums.
In economics
Fixed costs (FC) must be paid even at zero output, so average fixed cost (FC ÷ Q) always falls as output rises — this is 'spreading the overhead.' In the long run, there are no fixed costs, because every input can be varied.
Example
A restaurant pays $4,000 a month in rent whether it serves 100 or 5,000 meals, so the rent is a fixed cost.
Common confusion
Fixed cost is confused with sunk cost. Fixed costs may still be avoidable by shutting down (breaking a lease), whereas sunk costs cannot be recovered at all — past R&D spending is sunk, while rent on a current lease is fixed but not necessarily sunk.