Why Should Sunk Costs Not Be Considered When Evaluating a Project

question 88

Essay

Why should sunk costs not be considered when evaluating a project?

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Definitions:

Legal

Pertaining to laws or the system of rules that a particular country or community recognizes as regulating the actions of its members.

Cartel

An agreement among competing firms to control prices or exclude entry of a new competitor in a market, often to maximize overall profits.

Tacit Collusion

A situation where firms in the market indirectly coordinate actions by understanding common interests without explicit agreement, often leading to higher prices or less competition.

Marginal Costs

The additional cost incurred by producing one more unit of a good or service; this cost can vary with the level of production.