Economists believe that allocation of joint costs to individual products is necessary to make rational internal economic decisions about the products, such as their selling prices.

Question

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Economists generally argue that joint costs are sunk costs and should not influence decisions about the products, such as their selling prices, because these costs do not change with the decision about how much of each product to produce or sell. Pricing decisions should be based on marginal costs and market conditions.

Economists Believe That Allocation of Joint Costs to Individual Products