What defines a fixed cost for a business?

A fixed cost for a business is characterized by expenses that remain constant regardless of the level of output produced. This means that whether a company produces a large number of products or no products at all, these costs will not fluctuate. Common examples include rent, salaries of permanent staff, and equipment leases, which must be paid irrespective of the organization's production volume.

In contrast, costs that change with output levels are classified as variable costs and are directly tied to production, increasing when output rises and decreasing when it falls. Costs exclusively linked to labor are not synonymous with fixed costs since labor expenses can often be both fixed (salaries) and variable (hourly wages based on production levels). Furthermore, costs that incur as production increases typically fall under variable costs rather than fixed costs, emphasizing that fixed costs do not vary with output levels. Thus, the definition of fixed costs is accurately captured by the notion of stability amidst changes in production output.