After spending $5 million developing a new MP3 player,you discover that a competitor is about to introduce a new model similar to yours at a lower per unit price.The $5 million development cost:
A)should be factored into your decision on whether or not to introduce your new MP3 player.
B)should be ignored in your decision on whether or not to introduce your new MP3 player.
C)should not be included while determining the opportunity cost of this investment.
D)should be considered as fixed cost for the firm.

Question

Quizplus · Accepted Answer

The $5 million development cost is a sunk cost, meaning it has already been incurred and cannot be recovered. Therefore, it should not influence the decision on whether or not to introduce the new MP3 player. Decisions should be based on future costs and revenues, not on costs that have already been incurred.

After Spending $5 Million Developing a New MP3 Player,you Discover