Question

____ are defined as costs which are incurred regardless of the alternative action chosen in a decision-making problem.

1) Opportunity costs
2) Marginal costs
3) Relevant costs
4) Sunk costs
5) None of the above

Answer 1

Sunk costs are costs that have already been incurred and cannot be recovered or altered, thus they do not affect future economic decisions.

Step-by-step explanation:

Costs which are incurred regardless of the alternative action chosen in a decision-making problem are known as sunk costs. Fixed costs, such as rent or the purchase of equipment, are examples of sunk costs because they have been incurred in the past, and the firm cannot recover or change them. These costs should not influence economic decisions about future production or pricing, according to the budget constraint framework. In contrast, variable costs are associated with the production of goods and can change with the level of output, often reflecting diminishing marginal returns.