Retrospective (past) costs that have already been incurred and cannot be recovered.

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BlackTom AI · Accepted Answer

Question restatement: Retrospective (past) costs that have already been incurred and cannot be recovered.

Option a. Sunk Cost: This matches the definition precisely. Sunk costs are costs that have already occurred in the past and cannot be recovered regardless of future actions, making them irrelevant for future decision making.

Option b. Fixed Cost: Fixed costs are costs that do not change with the level of output in the relevant time period, such as rent or salaries. They can be incurred in the present or future and are not inherently tied to past expenditures, so this is not the best fit for the given description.

Option c. Explicit Cost: Explicit costs are direct, out-of-pocket payments for resources, like wages, materials, or utilities. While one could have incurred explicit costs in the past, the term does not inherently mean unrecoverable past costs, so this option is inaccurate for the specific notion of sunk costs.

Option d. Implicit Cost: Implicit costs are opportunity costs that do not involve a direct payment of money, such as the value of a founder’s time. They are costs that represent foregone alternatives and are not actual outlays, which does not capture the idea of past, unrecoverable expenditures.

Option e. Variable Cost: Variable costs change with the level of activity or production, like materials or direct labor. The description emphasizes past irrecoverable expenditures, not costs that vary with activity, so this option misfits the concept.

Putting it together, the description in the question aligns with sunk costs because it highlights past expenditures that cannot be recovered, rendering them irrelevant for future decisions. The other options describe different kinds of costs (present/future, behavioral, or opportunity costs) and do not capture the exact idea of unrecoverable past expenditures.

ECON 302 AL1 SP25: Inter Microeconomic Theory (Buckley, B)

Retrospective (past) costs that have already been incurred and cannot be recovered.

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