Final answer:
Sunk costs are costs that have been incurred and cannot be recovered, and thus, should not factor into future economic decisions. They are fixed costs already spent and irretrievable. The correct answer is (c) are forever lost after they have been paid.
Step-by-step explanation:
Sunk costs are costs that have already been incurred and cannot be recovered, which makes them irrelevant to future decision making. A sunk cost is a type of fixed cost, but it's important to understand that not all fixed costs are sunk. A sunk cost differs from other types of costs because it is 'sunk' in that it has already been paid and cannot be recovered by any means. Because these costs are in the past, they should not influence economic decisions about future production or pricing.
In the context of a firm's total revenue and costs, total revenue must exceed total costs for the firm to earn a profit. Sunk costs, being part of historical expenditures, should play no role in these decisions, unlike variable costs which can be adjusted and can provide information about the company's ability to cut costs and how costs will change with production levels. Variable costs demonstrate diminishing marginal returns, meaning as production increases, the marginal cost of producing an additional unit of output tends to rise.
Given the options provided, the correct answer is: c) are forever lost after they have been paid. This emphasizes one of the key characteristics of sunk costs - once they have been paid, there is no way to recover them, making them irrelevant for future decision-making processes within a company.