The money that a firm has already spent on research and development for a project should be categorized as _____ when the firm is deciding whether to make an additional investment in the project.
A) an implicit cost
B) a variable cost
C) a sunk cost
D) a marginal cost
E) an overhead cost

Question

Quizplus · Accepted Answer

A sunk cost is a cost that has already been incurred and cannot be recovered. When a firm is deciding whether to make an additional investment in a project, sunk costs should not be considered as they have already been spent and are not relevant to the decision at hand. Instead, the firm should focus on the incremental costs and benefits of the new investment.

The Money That a Firm Has Already Spent on Research