Fixed Cost

A fixed cost is one that does not fluctuate as a function of an individual’s or firm’s level of activity or usage. An example of a fixed cost is debt service. A borrower that obtains financing at a fixed interest rate is liable to pay a regular debt service on a monthly or annual schedule until the principal and interest on the loan reach zero.

A fixed cost is a critical input in a firm’s break-even analysis, which is used to determine pricing and production for the firm’s inputs and products.

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Hypothetical example(s) are for illustrative purposes only and are not intended to represent the past or future performance of any specific investment.

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