Fixed
costs are costs that are independent of output. These remain constant
throughout the relevant range and are usually considered sunk for the relevant
range (not relevant to output decisions). Fixed costs often include rent,
buildings, machinery, etc.
Variable
costs are costs that vary with output. Generally variable costs increase at a
constant rate relative to labor and capital. Variable costs may include wages,
utilities, materials used in production, etc. Another example could be
electricity--electricity usage may increase with production but if nothing is
produced a factory still may require a certain amount of power just to maintain
itself.
For
example, if a telephone company charges a per-minute rate, then that would be a
variable cost. A twenty minute phone call would cost more than a ten minute
phone call. A good example of a fixed cost is rent. If a company rents a
warehouse, it must pay rent for the warehouse whether it is full of inventory
or completely vacant.