Standard Economic Theory Asserts That Sunk Costs Are Irrelevant in Making

question 240

Multiple Choice

Standard economic theory asserts that sunk costs are irrelevant in making economic decisions, yet studies conducted by behavioral economists reveal that sunk costs often affect economic decisions.Which of the following could explain this observation?

• A)People measure the value of a good in terms of its purchase price.
• B)Even though sunk costs cannot be recovered, it has been incurred and therefore should be treated as part of the product's value.
• C)If consumers maximize their utility, it makes sense to consider the full purchase price of a product in their consumption decisions.
• D)Sunk costs have a higher opportunity cost than costs that can be recovered.

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Definitions:

Ongoing Feedback

Continuous input on performance and progress, aimed at encouraging development and improvement.

Motivating Goals

Objectives that inspire individuals or groups to take action and persist in their efforts to achieve them.

Equity Theory

A theory of motivation that focuses on the perceived fairness of the distribution of resources within interpersonal relationships, suggesting that individuals are motivated to maintain equity between their inputs and outcomes.

Goal Setting

The process of identifying specific, measurable, attainable, relevant, and time-bound objectives to be achieved in the future.