Sunk costs are costs that have already been incurred and cannot be recovered. They are irrelevant to future economic decisions because they do not change regardless of the outcome of the decision. Economic decisions should be based on marginal costs and benefits, not on costs that have already been incurred.

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Sunk Costs

Question 32

Multiple Choice

Sunk costs:

A) are essential parts of economic decisions.
B) are irrelevant to economic decisions.
C) should be considered, but only when marginal cost is less than marginal benefit.
D) should be considered only when there is no information about marginal cost and marginal benefit.

Correct Answer: