Fixed Inputs

For example, Waldo's TexMex Taco World operates in the short run with labor (the workers) as a variable input and capital (the restaurant and equipment) as a fixed input. As such, the cost associated with the capital input is likely to be fixed cost. This includes payments for the use of the restaurant building--rent if the building is not owned by Waldo's TexMex Taco World or interest payments if funds were borrowed to purchase the restaurant.

Other fixed cost, however, might not be directly associated with short-run fixed inputs. For example, administrative salaries, such as that to the President of Waldo's TexMex Taco World (Waldo Millbottom), are paid whether Waldo's TexMex Taco World produces 1 taco or 1 billion tacos. This cost is not, strictly speaking, associated with a fixed input, but it is a fixed cost.

Total and Average

• Total Fixed Cost: This is the total amount of fixed cost incurred in the production of a good. It combines all fixed opportunity cost.


• Average Fixed Cost: This is the per unit fixed cost, which is calculated by dividing total fixed cost by the quantity of output produced. Because total fixed cost is fixed, average fixed cost declines as quantity increases.