What are "fixed costs"?

Fixed costs are defined as costs that remain constant regardless of the level of production or sales. These expenses are incurred even when a business is not producing any goods or services. Examples of fixed costs include rent, salaries of permanent employees, and insurance premiums. Because these costs do not fluctuate with production levels, they are crucial for businesses in planning budgets and understanding profit margins, as they must be covered regardless of revenue earned during different periods.

Other options describe different types of costs. Variable costs, for instance, change directly with production levels, while costs that can be easily modified or adjusted may refer to semi-variable costs or other flexible expenses that have the potential to vary based on different circumstances or decisions made by the business. However, fixed costs distinctly remain stable and do not change in the short term, which distinguishes them clearly from these other cost types.