Jackson just took out a $1,000 loan to buy a 1979 Corvette and he needs to travel to Vancouver this summer.He can either drive his car or take a bus.In order to make a rational decision,he decides to calculate the costs of driving the car on the trip.He estimates the cost of gas at 10 cents per kilometre,the car repair shop estimates maintenance at 3 cents per kilometre,his car insurance costs $600 for 6 months,and from a Web site,he determines that depreciation is about $1 per kilometre.
-Which of the above costs are sunk cost and,therefore,should NOT be included in his analysis?
A) Maintenance,depreciation,insurance and loan payment costs.
B) Maintenance,depreciation and insurance costs.
C) Depreciation,insurance and loan payment costs.
D) Insurance and loan payment costs.
E) The cost of the car.

Question

Quizplus · Accepted Answer

Insurance and loan payment costs are sunk costs because they are fixed and will not change regardless of whether Jackson drives the car or not.

Jackson Just Took Out a $1,000 Loan to Buy a 1979