What do economists mean by the phrase "sunk costs are sunk"?
A) Sunk costs are irretrievable,but they do lower profits and thus affect the firm's output level.
B) Sunk costs are a primary reason why marginal costs tend to increase.
C) Sunk costs cannot be recovered and are irrelevant to future decision making.
D) Sunk costs lower consumer welfare,because producers "pass on" these costs in the form of higher prices.

Question

Quizplus · Accepted Answer

Economists mean that sunk costs, or costs that have already been incurred and cannot be recovered, are irrelevant to future decision making. This is because the money spent on these costs cannot be recovered and should not be taken into account when making decisions about future investments or production. Focusing on sunk costs can lead to irrational decision making and prevent firms from taking advantage of new opportunities.

What Do Economists Mean by the Phrase "Sunk Costs Are