Sunk Costs

question 24

Multiple Choice

Sunk costs:

• A)will not affect any aspect of decision making by a competitive firm in the short run.
• B)are costs that can only be controlled by reducing labor input.
• C)affect the shutdown price in that higher sunk costs raise the shutdown price.
• D)do not affect the profit or losses of a firm.

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Definitions:

Production Volume

The total number of units produced during a specific period, reflecting the level of manufacturing activity.

Fixed Manufacturing Cost

Costs that remain constant regardless of the level of production or sales activities, such as salaries, rent, and depreciation on manufacturing equipment.

Production Volume

The total quantity of products or goods produced by a company within a specific period.

High-low Method

A technique used in cost accounting to estimate fixed and variable costs associated with production by analyzing the highest and lowest levels of activity.