Final answer:
The correct answer is option B. The cost of an old inefficient oil burner that will be replaced by a more modern and efficient one.
Step-by-step explanation:
When discussing sunk costs, it's important to recognize that these are costs already incurred and cannot be recovered. Thus, they should not influence ongoing business decisions, which should be made based on potential future returns. In the context given, Earl was likely referring to the cost of an old inefficient oil burner as a sunk cost. Since the burner has already been purchased and its cost cannot be undone, replacing it should be based on the efficiency and savings a new burner would provide, not on what was spent in the past.
The concept of sunk cost fallacy highlights the common mistake where individuals or businesses continue to consider sunk costs when making decisions. This can lead to irrational decision-making, like continuing to invest in a failing venture due to the emotional and monetary investment made previously. Sunk costs, by their nature, should not factor into the decision to replace the old oil burner because they are past expenditures that won't change regardless of future actions.
Therefore, the best approach for Bubba would be to assess the additional marginal gains from a new oil burner without weighing the costs of the old one, which are already sunk and should not affect the business' forward-looking decisions.