Reflect on a time where you or someone you know experienced

Reflect on a time where you, or someone you know, experienced sunk costs. How did sunk costs affect the decisions made, from your experience? Provide at least two examples as to why or why not.

Your journal entry must be at least 200 words.

Solution

Sunk costs: Sunk costs are investment costs incurred before a certain activity takes place which cannot be recovered by the possible sale of the asset they produced.High sunk costs makes an investment irreversible, what, couple with uncertainty about the future, impacts the level of investment by industry, as this empirical analysis points out.

Sunk cost why : my colleague after some days of job left he started a companyand spends Rs50,000 on a marketing study to see if its new auburn widget will succeed in the marketplace. The study concludes that the widget will not be profitable. At this point, the Rs50,000 is a sunk cost. The company should not continue with further investments in the widget project, despite the size of the earlier investment.

sunk cost why not example : My friend had Supreme Clothing makes baseball gloves, and the company produces a basic model of glove that costs Rs50 per unit and sells for Rs70 per glove. He as a manufacturer can sell the basic model and earn a Rs20 profit, or it can continue production by adding Rs15 in costs and sell a premium model glove for Rs90. To make this decision, he compares the Rs15 additional cost with the Rs20 added revenue and decides to make the premium glove and earn Rs5 more in profit. The cost of the factory lease and the machinery are both sunk costs and are not part of the decision-making process.