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Welcome to the Investors Trading Academy glossary of financial terms. Today's word is Fixed Cost. In economics, a business achieves economies of scale by spreading fixed costs over more goods. Fixed costs remain constant regardless of production level, such as building lease payments. For example, a $100,000 lease spread over 100,000 widgets means $1 in fixed costs per unit, which decreases to 50 cents if 200,000 widgets are produced. Fixed costs are essential expenses that must be paid regardless of business activity, along with variable costs.
