Question

The following options describe costs incurred by owners of a given business. Identify which would be considered a sunk cost for a firm that is considering exiting a market

Answer 1

A sunk cost when the firm is considering exit is the cost which is being incurred already and is unavoidable.

What is a Sunk Cost?

A sunk cost is a type of expenditure which the firm incurs and there is no way to avoid this cost, and the expenditure is incurred already and the next decision taken will have no impact on this expenditure.

For example the sunk cost can be:

Rent - no matter how much of area is being used but the rent for whole area is being paid.

Wages - No matter how much units are produced but the wages are paid.

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