What is the definition of fixed cost in microeconomics?

The definition of fixed cost in microeconomics refers to costs that do not change with the level of output produced by a firm. These costs remain constant regardless of the quantity of goods or services produced. For example, expenses such as rent, salaries of permanent staff, and insurance are considered fixed costs because they are incurred even if the business produces nothing.

Understanding fixed costs is crucial for businesses, as they help in determining the break-even point and analyzing financial health. Unlike variable costs, which fluctuate with production volume, fixed costs provide stability in budgeting for short-term financial planning.

The other options refer to different economic concepts or types of costs. Variable costs, as indicated in one of the incorrect options, do change with output; raw materials typically fall under variable costs since they are directly related to the production level; and profit margin per product pertains to revenue considerations rather than cost definitions. Therefore, the correct answer accurately identifies fixed costs as expenses that remain unchanged despite variations in production output.