Following the 2016 season, the San Francisco Giants signed pitcher Mark Melancon to a 4-year, $62 million contract. Melancon, who pitched poorly during 2017 and 2018, was still owed $28 million over the next two years, which the Giants would have to pay him even if they decided to release him to pursue potentially better pitchers. The Giants decided to keep Melancon on their roster. If the Giants decision to keep him was based on the $28 million still owed, economists would say that the Giants

Question

Quizplus · Accepted Answer

The $28 million already committed to Melancon is a sunk cost, meaning it's a cost that has already been incurred and cannot be recovered. The decision to keep him should ideally be based on his future performance potential and not on the money already spent. By deciding to keep him based on the money already spent, the Giants are failing to ignore these sunk costs, which is considered an error in economic decision-making.

Following the 2016 Season, the San Francisco Giants Signed Pitcher