If a short-run fixed cost is sunk, then
A)losses can be minimized by shutting down.
B)the firm should keep producing to cover the sunk cost.
C)the cost cannot be avoided by shutting down.
D)Both B and C.

Question

Quizplus · Accepted Answer

A sunk cost is a cost that has already been incurred and cannot be recovered, regardless of future decisions. Therefore, shutting down the production will not avoid the cost. The firm should keep producing as long as the total revenue covers the variable costs and contributes to the overhead costs and profits. In the short run, the decision to produce depends on the variable costs and revenue, not sunk costs.

If a Short-Run Fixed Cost Is Sunk, Then