Final answer:
Money already spent or obligated that cannot be recovered by a firm is known as a sunk cost. These costs should not influence future economic decisions, and attention should instead focus on variable costs, which are relevant for present and future production and pricing strategies.
Step-by-step explanation:
Money that a firm has already spent or is committed to spend regardless of whether a project is taken is called a sunk cost. Sunk costs are expenditures that have been made in the past and cannot be recovered. Firms should typically ignore these costs when making economic decisions about future production or pricing, since they cannot be altered. Instead, emphasis should be placed on understanding and managing variable costs, which can inform the firm's ability to reduce costs in the present and give insight into how costs will change with varying production levels.
Fixed costs are often sunk costs in that they are incurred before any production takes place and must be paid regardless of the quantity of output. In the context of making economic choices, considering sunk costs can lead to the sunk cost fallacy, which is the mistaken practice of continuing to invest in a failing venture due to the emotional attachment to past investments.