Final answer:
Sunk costs are past expenses that cannot be recovered and should not affect future economic decisions. They are contrasted with variable costs, which can be adjusted and can inform a firm's current and future cost management strategies.
Step-by-step explanation:
The costs incurred as a result of past irrevocable decisions are known as sunk costs. These are expenditures that have already been made and cannot be recovered, no matter what future actions are taken. In the context of business and economics, when making decisions, it's important to disregard sunk costs since they should not influence future economic choices. A company must focus on managing its variable costs, as these can be altered based on the firm's production levels and can provide insights into the company's ability to reduce costs in the present and how costs will scale with production changes.