The Distinction Between Sunk and Incremental Costs Is Most Helpful

question 46

Multiple Choice

The distinction between sunk and incremental costs is most helpful in answering which question?

• A)How many more people should be added to the production process?
• B)What is the correct price to charge?
• C)Should we begin to build a new factory?
• D)Should we continue developing a new software application that we began last year?

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Definitions:

Consumption Function

An economic formula that represents the relationship between total consumption and gross national income.

Disposable Income

The financial resources families have for expenditures and savings after income taxes are removed.

Disposable Income

The total funds available to families for spending and saving after subtracting income tax.

Transfer Payments

Payments made by governments to individuals without any expectation of a good or service in return, such as welfare or unemployment benefits.