Fixed Costs

Fixed costs are expenses that a business incurs that do not change with the level of output. These costs are constant regardless of whether the business produces a lot or a little. They are important to understand because they represent a significant portion of a business's expenses and can impact profitability.

For example, rent is a common fixed cost. A business will typically pay the same amount of rent each month regardless of how much product it sells or services it provides. This is true whether the business is a small shop or a large factory.

Another example is salaries for full-time employees. Even if the business experiences a decrease in sales, it is still obligated to pay its employees their agreed-upon wages.

Understanding fixed costs is crucial for businesses to make informed decisions about pricing, production levels, and overall financial planning.

**Sources:** * D. Hall, Rob Jones, Alan Robinson, Business Studies for GCSE (2019). * GCSE Business Studies Tutor2U Revision Guide (2023).