Sunk Costs

question 79

Multiple Choice

Sunk costs:

• A)have future implications.
• B)are differential.
• C)are relevant.
• D)are ignored when evaluating alternatives.

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Definitions:

Substitution Effect

The change in demand for a good due to a change in its price, leading consumers to substitute it with another product.

Output Effect

When the price of any resource rises, the cost of production rises, which, in turn, lowers the supply of the final product. When supply falls, price rises, consequently reducing output.

Marginal Revenue Product

The additional revenue generated from employing one more unit of a factor of production, holding all other factors constant.

Additional Revenue

Income gained from any additional unit of output or sale beyond the current level of production or service.