Suppose a firm is considering production of a new product whose projected sales include sales that will be taken away from another product the firm also produces. The lost sales on the existing product are a sunk cost and are not a relevant cost to the new product.

Question

Quizplus · Accepted Answer

Lost sales from an existing product due to the introduction of a new product are not sunk costs; they are opportunity costs and should be considered when evaluating the profitability of the new product.

Suppose a Firm Is Considering Production of a New Product