Sunk Costs Should Be Ignored in Decision Making Because They

question 54

Multiple Choice

Sunk costs should be ignored in decision making because they

• A)increase the cost of the transaction
• B)lead to an increase in the opportunity cost of any decision
• C)have already been paid
• D)often exceed marginal and average costs
• E)are usually negligible when compared with the explicit costs of decisions

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Definitions:

Coal Mines

Locations where coal is extracted from the earth, often involving extensive mining operations.

Rental Expenses

Rental expenses are costs incurred in the operation, maintenance, and management of rental property and can include repairs, property taxes, and mortgage interest, often deductible for tax purposes.

Schedule E

A form used by taxpayers in the United States to report income and losses from rental property, royalties, partnerships, S corporations, estates, trusts, and residual interests in REMICs.

Depreciation

The reduction in the value of an asset over time, due to wear and tear, age, or obsolescence.