In analysing the decision to shut down in the short run, we assume that the firm's fixed costs are
A)implicit costs.
B)capital costs.
C)nonmonetary opportunity costs.
D)sunk costs.

Question

Quizplus · Accepted Answer

Fixed costs are sunk costs in the short run, meaning that they cannot be recovered. Therefore, they should not be taken into account when making a decision about whether to shut down or continue operations in the short run. A sunk cost is a cost that has already been incurred and cannot be recovered, so it is not relevant to current decision-making.

In Analysing the Decision to Shut Down in the Short