Mr. Smith included the cost of test marketing before production in the calculation of the initial outlay. Apparently, Mr. Smith does not understand the concept of
A) side-effect costs.
B) opportunity costs.
C) sunk costs.
D) variable costs.

Question

Quizplus · Accepted Answer

The cost of test marketing is a sunk cost because it has already been incurred and cannot be recovered. It is not relevant to the decision of whether or not to proceed with production, as it cannot be changed. Therefore, it should not be included in the initial outlay calculation.

Mr Smith Included the Cost of Test Marketing Before Production