The Following Statements About the "Sunk Cost Fallacy" Are True

question 348

Multiple Choice

The following statements about the "sunk cost fallacy" are true, except

• A)it's the tendency to drag past costs into current marginal cost-benefit calculations.
• B)it comes from a desire to "get one's money's worth" out of a past expenditure.
• C)it refers to the fact that average fixed costs are not a major part of production costs.
• D)it could lead one to "throw good money after bad."

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Definitions:

Variable Factor

In economics, an input in the production process that can be adjusted in the short run to change the quantity of output.

Fixed Factors

Inputs in the production process that cannot be easily increased or decreased in a short period of time.

Constant Returns To Scale

a situation in production where increasing all inputs by the same percentage results in output increasing by that same percentage.

Long-run Profits

The potential earnings of a business over a period long enough for all inputs to be adjusted, considering the firm's ability to enter or exit markets.