Fixed costs are a necessary regulator of the economy.
Where do the company's permanent spending come from?
The activity of any firm is connected not only with obtaining permanent income, but also with incurring certain expenses for maintaining the level of production and preventing its decline. Thus, there are spending on storage facilities and shops, administrative and working staff, repair and purchase of equipment, as well as much, much more. All this together constitutes an indivisible element called “fixed costs”.
Are these contributions necessary?
In principle, the existence of the company is questioned without this indicator. No matter how much the capitalist wants to abandon additional expenses, having replaced them with excess profit, he has to invest a certain amount of money, regardless of production capacity. Thus, if simplified, the fixed costs - the cost of monthly or annual actions.They are designed to support the existence of the company.
And where are the fixed costs in the real world?
Shop for the production of cars will be an excellent example to demonstrate this indicator. Thus, the fixed costs of the manufacturer will be to pay for the work of marketers who create new promotions, workers who will directly collect machines, designers who will design them, and administrative resources thatwill manage all of this. But that is not all. So, no one, even the most brilliant marketer will not be able to make an advertising campaign and negotiate with suppliers if he does not have a telephone. The designer will not be able to draw without the appropriate equipment. And the worker will not assemble the machine on a non-working machine. Thus, the fixed costs also include maintaining the equipment in the right condition. But this, surprisingly, is not all. The produced machines do not dissolve in the air and do not go under their own power to the buyer, they at first settle in the warehouse. Fees for these buildings are also included in fixed costs.
What are they needed for?
Having considered on such an example only a few basic points where money goes by this indicator, one can estimate its economic significance. First, fixed costs perform the function of redistribution. Thus, an industrialist does not conceal all his profits in his pocket; he is somehow forced to share it with a large number of people, thereby restoring social justice. Secondly, this indicator eliminates noncompetitive enterprises that simply occupy a place in the market. The need for regular payments that are not investment in the full sense of the word, forcing firms unable to cope with such a monetary load to narrow their production, giving way to more advanced organizations that can fight for a place under the sun.
Benefits for the people
Thus, fixed costs are an extremely useful indicator. Thanks to him, the economy not only thrives and develops, but also performs the basic function that virtually any modern state lays in it. It provides social justice, complementing the tax system already operating in this area.