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Sunk cost. In economics and business decision-making, a sunk cost (also known as retrospective cost) is a cost that has already been incurred and cannot be recovered. [1] [2] Sunk costs are contrasted with prospective costs, which are future costs that may be avoided if action is taken. [3] In other words, a sunk cost is a sum paid in the past ...
Analyzing from the composition of costs, sunk costs can be either fixed costs or variable costs. When a company abandons a certain component or stops processing a certain product, the sunk cost usually includes fixed costs such as rent for equipment and wages, but it also includes variable costs due to changes in time or materials. Usually ...
When some costs are sunk and some are not sunk, total fixed costs (TFC) equal sunk fixed costs (SFC) plus non-sunk fixed costs (NSFC) or TFC = SFC + NSFC. When some fixed costs are non-sunk, the shutdown rule must be modified. To illustrate the new rule it is necessary to define a new cost curve, the average non-sunk cost curve, or ANSC.
Any student who has taken an introductory course in economics is familiar with the term ―sunk costs‖— costs that are irrelevant to decisions because they cannot be changed and will not differ among future alternatives. However, in reality, managers can fixate on a past decision and allow this to interfere with judgments related to
Alamy There are some economic terms most of us know and understand, such as supply and demand. And there are other terms we will probably never even run across, like implicit logrolling and a ...
To mitigate cognitive biases, such as the sunk-cost bias, educators must raise students' awareness of these common judgment errors. In this article, the author proposes a classroom activity that actively engages students and allows them to identify this bias in their own judgments.
That would make the market more contestable. Sunk costs are those costs that cannot be recovered after a firm shuts down. For example, if a new firm enters the steel industry, the entrant needs to buy new machinery. If, for any reason, the new firm cannot cope with the competition of the incumbent firm, it will plan to move out of the market.
In the "toolbox" Hecksher-Ohlin and Krugman models of international trade, the budget constraint of the economy (its CPF) is determined by the terms-of-trade (TOT) as a downward-sloped line with slope equal to those TOTs of the economy. (The TOTs are given by the price ratio Px/Py, where x is the exportable commodity and y is the importable).