Sunk Cost Review

Front

What is a sunk cost?

Back

A sunk cost is a cost that has already been incurred and cannot be recovered. It should not influence future decisions.

Front

How should a company view its initial investment in a failing product?

Back

The initial investment should be viewed as a sunk cost, and the company should evaluate the potential of further investment based on future benefits, not past costs.

Front

Why should sunk costs not influence future decisions?

Back

Sunk costs are irrecoverable and focusing on them can lead to poor decision-making, as they do not reflect the current or future value of options.

Front

What should a person consider when deciding whether to attend a concert after buying a non-refundable ticket?

Back

They should consider the ticket price as a sunk cost and focus on the opportunity cost of the potential earnings from working overtime.

Front

How can a student apply the concept of sunk costs to their education?

Back

A student should view time spent on a failed course as a sunk cost and focus on improving their performance in future courses.

Front

What is the opportunity cost in the context of sunk costs?

Back

Opportunity cost is the potential benefit lost when choosing one option over another, which should be prioritized over sunk costs.

Front

What is an example of a sunk cost in business?

Back

An example is a company spending money on research and development for a product that is ultimately not feasible.

Front

How should a company approach future technology investments after investing in obsolete technology?

Back

The company should consider the initial investment as a sunk cost and focus on current technology trends and future potential.

Front

What is the difference between sunk costs and recoverable costs?

Back

Sunk costs are irrecoverable expenses, while recoverable costs can still be recouped through future actions or sales.

Front

Why is it important to recognize sunk costs in decision-making?

Back

Recognizing sunk costs helps individuals and businesses make rational decisions based on future benefits rather than past losses.