Multiple Choice
In marginal analysis, the marginal benefit of an additional slice of pizza is best defined as the:
1
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0. Basic Principles of Economics
Marginal Analysis
Multiple Choice
Why do sunk costs not affect rational decision-making?
A
Because sunk costs change with the level of output and thus should be ignored only when production is fixed.
B
Because sunk costs are past expenditures that cannot be recovered and therefore do not affect the incremental costs or benefits of future choices.
C
Because sunk costs represent part of the total cost and must always be included when comparing any alternatives.
D
Because sunk costs will be recovered if you continue the activity, so they determine the future returns and decisions.
Verified step by step guidance1
Step 1: Understand the definition of sunk costs. Sunk costs are costs that have already been incurred and cannot be recovered regardless of future actions.
Step 2: Recognize that rational decision-making focuses on comparing the incremental or marginal costs and benefits of future choices, not past expenditures.
Step 3: Note that since sunk costs cannot be changed by any current or future decision, they do not influence the additional costs or benefits of continuing or stopping an activity.
Step 4: Therefore, rational decision-making involves ignoring sunk costs and basing decisions solely on relevant future costs and benefits.
Step 5: Conclude that sunk costs do not affect rational decision-making because they are past expenditures that cannot be recovered and do not impact the incremental analysis of future options.
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