Question

An important role of sunk costs is:

a. To help ensure that the cost of taking on a new venture is determined properly.
b. To help evaluate the performance of a manager in the most recent period.
c. To guide managers when they acquire new productive capacity.
d. None of the above.

Answer 1

The correct answer to the role of sunk costs is 'd. None of the above' because sunk costs, being expenses that have already been incurred and cannot be recovered, should not influence current or future business decisions.

Step-by-step explanation:

An important role of sunk costs is d. None of the above. Sunk costs are costs that have already been incurred and cannot be recovered. Many firms struggle with sunk costs because they represent financial resources spent on past decisions that did not lead to successful outcomes, such as the launch of a new product that fails to perform well in the market. However, the key lesson with sunk costs is to leave them behind and make forward-looking decisions. When making current or future business decisions, sunk costs should not be factored in because they do not change the future costs or benefits of a decision. Rather than affecting how firms determine the cost of a new venture, evaluate a manager's performance, or guide acquisition of new capacity, sunk costs should be recognized as past expenditures that are irrelevant to current and future economic decisions.

Answer: d. None of the above.