The insurance coverage amount may change based on the business's needs, but the premium amount will remain fixed. Insuranceįor example, a business that pays $1,000 monthly for liability insurance will have to pay that amount regardless of how much they produce or sell. For instance, if a business has salaried employees who earn $4,000 per month, they will be paid that amount even if the business experiences a slow month in terms of production. The amount of money a business pays its employees each month is typically fixed and does not change based on production or sales. Fixed costs may change over time, for instance the rent cost would. Long run: Fixed costs have yet to be decided on and paid, and thus are not truly 'fixed. For example, a retail store that pays $5,000 monthly rent will have to pay that amount whether they sell $10,000 or $100,000 worth of products monthly. Examples of fixed costs would be the rent of a building, or salaries for office staff. In summary, the short run and the long run in terms of cost can be summarized as follows: Short run: Fixed costs are already paid and are unrecoverable (i.e. Rent is a fixed cost that businesses must pay regardless of how much they produce or sell. Fixed Costs ExamplesĮxamples of fixed costs include rent, salaries, insurance and loan payments. Want to know how a firm makes profits after incurring all these costs? Read our article on Revenue vs Profit. Taken together, fixed and variable costs are the total cost of keeping your business running and making sales. Price Determination in a Competitive Market.Market Equilibrium Consumer and Producer Surplus.
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