Final answer:
Fixed costs are the expenses a firm incurs before any production occurs and remain constant regardless of production levels, such as rent and salaries. These costs are incurred even if production is zero and are considered sunk costs that should not affect future production or pricing decisions.
Step-by-step explanation:
In a short-run perspective within the context of business economics, fixed costs represent the expenses that a firm incurs regardless of the level of production. They are costs that do not change with the amount of goods or services produced and are incurred even at zero production. Examples of fixed costs include rent, salaries of permanent staff, and depreciation of equipment. In contrast, variable costs fluctuate with production volume. These costs typically exhibit diminishing marginal returns, meaning the cost of producing each additional unit increases as more is produced. While fixed costs are considered sunk costs and should not influence future economic decisions, variable costs provide insight into the firm's ability to manage expenses in the present and how costs will escalate with increased production.
Considering an example where a firm has a fixed cost of $160, this amount would be present as a cost even if the firm produces nothing at all. As production increases, variable costs are added to these fixed costs, and the total cost is the sum of both.