TOTAL FIXED COST: Cost of production that does NOT change with changes in the quantity of output produced by a firm in the short run. Total fixed cost is one part of total cost. The other is total variable cost. At any and all levels of output, fixed cost is the same. It includes cost that is not dependent on, or is unrelated to, production. The best way to identify fixed cost is to produce zero output. Fixed cost is incurred whether or not any output is produced. A cost measure directly related to total fixed cost is average fixed cost.Total fixed cost is the opportunity cost incurred in the short-run production that does not depend on the quantity of output. As the name clearly implies, total fixed cost is fixed. A firm can produce a little output or a lot, increase or decrease production, or even stop producing altogether, but fixed cost remains unchanged. Fixed cost must be paid as long as a firm is in business in the short run. The only way to avoid fixed cost is to get out of the business, which involves selling off all capital, and thus causing the quantity of fixed inputs to drop to zero (no capital, no business). However, in so doing, the firm is no longer operating in the short run, because all inputs have become variable. Fixed InputsTotal fixed cost is usually, not always but usually, associated with inputs that are fixed in the short run. For example, The Wacky Willy Company operates in the short run with labor (the workers) as a variable input and capital (the factory building and equipment) as a fixed input. The cost associated with the capital is a key component of total fixed cost. This fixed cost includes rental payments for the use of the building and interest payments on funds borrowed to purchase the capital equipment.Other fixed cost, however, might not be directly associated with short-run fixed inputs. For example, administrative salaries, such as that paid to the President of The Wacky Willy Company (William J. Wackowski), are incurred whether The Wacky Willy Company produces 1 Stuffed Amigo or 1 billion Stuffed Amigos. The Cost of Stuffed Amigos
The center column is the total fixed cost of producing each quantity, which is exactly $3 for each and every quantity of output. This is the essence of fixed cost. If 4 Stuffed Amigos are produced, then the total fixed cost incurred in their production is $3. The production of 9 Stuffed Amigos also incurs a total fixed cost of $3. Total fixed cost is fixed, it does not change with the quantity.
The Total Fixed Cost Curve
The total fixed cost curve (TFC) for Wacky Willy Stuffed Amigos production is illustrated in the graph to the right. The distinguishing characteristic of this curve is that it is a horizontal line. Total fixed cost is $3 for zero production and it remains $3 for every level of production, no more and no less. Average Fixed CostTotal fixed cost can be used to derive a related fixed cost concept--average fixed cost. Average fixed cost is simply fixed cost per unit of output, which can be found by dividing total fixed cost by the quantity of output. If, for example, total fixed cost is $3 and the quantity of output produced is 10 Stuffed Amigos, then average fixed cost, that is the fixed cost per unit produced, is $0.30 (= $3/10).The connection between total fixed cost and average fixed cost is mathematically represented by this equation:
A Variable AlternativeTotal fixed cost is one of two components of total cost. The other is total variable cost. Total variable cost is the opportunity cost incurred in the short-run production by a firm that DOES depend on the quantity of output. If more output is produced, then total variable cost is greater. If less is produced, then total variable cost declines. If no output is produced, then total variable cost is zero.Total variable cost is closely connected to the use of variable inputs. This means that total variable cost is guided by the law of diminishing marginal returns. As the productivity of the variable inputs change, then so too does variable cost. The relation is best reflected in marginal cost. The connection between total cost, total fixed cost, and total variable cost is often summarized in this handy equation:
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