Question

What is meant by the Total Fixed Cost of production?

What is meant by the Total Fixed Cost of production?

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Answer #1

A firm in the short run uses both fixed input and variable inputs. The cost that arise due to the use of fixed inputs are called total fixed cost. It is the cost of the firm's fixed inputs. Fixed cost is independent on of the level of output. whatever be the level of output, fixed cost do not change. thus, fixed costs are the sunk costs. in the following figure Total Fixed Cost (TFC) curve has been drawn. it is parallel to the horizontal axis on which we measure output.

it is clear from the figure that that the firm incurs a total fixed cost of OA, whether it produces or not. Example of total fixed costs are: Expenses for rent on land; salaries of top officers; interest on borrowed funds; depreciation of machine; capital cost of computer etc.

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