Understanding Sunk Costs and Decision Making

What was the main reason for General Motors' decision to close some of its factories?

• To expand into new markets

• Due to a lack of demand for their products

• To increase production of sedans

• To reduce environmental impact

In the toy company example, what is the term used for the $40,000 already spent?

• Opportunity cost

• Variable cost

• Fixed cost

• Sunk cost

Why should sunk costs be ignored in decision-making?

• They are part of the total cost

• They increase potential profits

• They do not affect future costs and benefits

• They are recoverable

In the second scenario, what should the toy company do if the additional cost is $110,000 and the expected revenue is $100,000?

• Decrease production

• Increase production

• Stop production

• Continue production

What is a common mistake people make when dealing with sunk costs in investments?

• Ignoring potential profits

• Selling stocks immediately

• Holding onto stocks hoping for recovery

• Investing in low-risk options

Which of the following is an example of a sunk cost in a relationship?

• Mutual friends

• Shared interests

• Time already spent

• Future plans together

What lesson can be learned from the examples of Google Glass and Microsoft Zune?

• Ignore past investments if they are not profitable

• Always invest in new technology

• Focus on marketing strategies

• Continue investing in failing products

What is the main takeaway from the General Motors example?

• Always expand production

• Losses are inevitable, move forward

• Focus on sedan production

• Never close factories

Why is it important to think like an economist when making decisions?

• To maximize sunk costs

• To focus on past investments

• To avoid making any losses

• To evaluate future costs and benefits

What should you do if you realize a project will cost more than the expected revenue?

• Stop the project

• Reduce the quality

• Increase the budget

• Continue with the project