Answered: Explain why sunk costs should not be…

Business

Economics

Explain why sunk costs should not be taken into account in decidingwhat to do next.

Survey Of Economics

10th Edition

ISBN:9781337111522

Author:Tucker, Irvin B.

Publisher:Tucker, Irvin B.

Chapter6: Proudction Costs

Section: Chapter Questions

Problem 7SQP

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Concept explainers

Explicit and Implicit Cost Analysis

The entire idea of the cost of production or production cost is applied corresponding or we can say that it is related to money cost. Money cost refers to any money expenditure which the firm or supplier or producer undertakes in purchasing or hiring factors of production or factor services.

Question

Explain why sunk costs should not be taken into account in deciding
what to do next.

Expert Solution

Step 1

In the production process, different inputs are used to produce the final output. Each input has its own level of productivity. There are several costs associated with the production process, some of them vary with the level of output as known as a variable cost, and some do not vary hence known as a fixed cost.

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