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Welcome to Investors Trading Academy's 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. For example, a $100,000 lease spread over 100,000 widgets means each widget carries $1 in fixed costs. Fixed costs stay the same regardless of production levels and must be paid by the company. They are one of the two components of the total cost of a good, alongside variable costs. Examples include lease payments on a building, which must be paid in full even if no goods are produced.
