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In economics and business decision-making, a sunk cost (also known as retrospective cost) is a cost that has already been incurred and cannot be recovered. [ 1 ] [ 2 ] Sunk costs are contrasted with prospective costs , which are future costs that may be avoided if action is taken. [ 3 ]
Alamy There are some economic terms most of us know and understand, such as supply and demand. And there are other terms we will probably never even run across, like implicit logrolling and a ...
From the traceability source of costs, sunk costs can be direct costs or indirect costs. If the sunk cost can be summarized as a single component, it is a direct cost; if it is caused by several products or departments, it is an indirect cost. Analyzing from the composition of costs, sunk costs can be either fixed costs or variable costs.
When some costs are sunk and some are not sunk, total fixed costs (TFC) equal sunk fixed costs (SFC) plus non-sunk fixed costs (NSFC) or TFC = SFC + NSFC. When some fixed costs are non-sunk, the shutdown rule must be modified. To illustrate the new rule it is necessary to define a new cost curve, the average non-sunk cost curve, or ANSC.
It’s a term borrowed from the finance world, but you don’t have to know a ton about economics to get it. “The sunk-cost fallacy refers to the tendency humans have to continue investing in a ...
Forget about how much time or money you've invested
Some costs that require firm to comply in order to exit market. For example, remediation costs due to environmental regulations. High fixed exit costs. "can include loans, which the company pays back over time, property costs, vehicle costs or any settlement packages for investors or employees." [6] Indirect opportunity costs of exit: Sunk costs.
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