Final answer:
Sunk costs refer to past expenditures that cannot be recovered, such as lawn mowers for a lawn care service, photography classes for a photographer, billboards for a shoe shop, and wedding cakes for a cake shop if these businesses are considering exiting their markets. Such costs should not influence future business decisions as they are already incurred and cannot be changed.
Step-by-step explanation:
When considering which costs would be classified as a sunk cost for a firm that is thinking about exiting a market, it's important to recognize that sunk costs are expenditures that have already occurred and cannot be recovered. For Luke's Lawn Care, the cost of two riding lawn mowers, for Philipe's Photography Shop, the cost of taking two online photography classes, for Shantel's Shoe Shop, a new large billboard sign, and for Carlos's Cakes Shop, four wedding cakes would all be considered sunk costs if these businesses are exiting their markets. These costs cannot be recovered whether or not the business continues operations.
On the other hand, for Frida's Fireworks Displays, the fireworks could potentially be sold to another firm or used at a later date, hence they might not necessarily be sunk costs unless they are specific to an event that is now canceled and have no resale value.
It is essential for firms to be aware that sunk costs should not influence their decision-making about future actions, as these costs are already incurred and cannot be altered. Decisions should instead be based on variable costs that can still be affected by current and future choices.