Final answer:
Fixed costs are business expenditures that remain constant, regardless of the amount of production, such as rent or machinery costs. These are different from variable costs, which change with production levels. Fixed costs are considered sunk costs when analyzing future business decisions.
Step-by-step explanation:
Fixed costs refer to expenditures that do not change regardless of the level of production within a business. These are associated with fixed inputs, such as capital, that remain constant in the short run. For example, rent for a factory or retail space remains the same whether a company produces a large volume or a small number of goods. Moreover, fixed costs can include the cost of machinery, research and development, and advertising efforts to build a brand name. These costs do not vary with production levels and are often seen as sunk costs, which are already incurred and cannot be retrieved. It's important to differentiate these from variable costs, which fluctuate with the production levels and can be adjusted in the present to manage costs more effectively.