ning your store 4 Suppose you have just paid a nonrefundable

ning your store 4. Suppose you have just paid a nonrefundable fee $1000 for your meal plan for this academic term. Thi allows you to eat dinner in the cafeteria every evening a. You are offered a part-time job in a restaurant where you can eat for free each evening. Your par ents say that you should eat dinner in the cafete- ria anyway, since you have already paid for those meals. Are your parents right? Explain why or why not.

Solution

Our parents are not right.

This is because payment of meal plan has already been incurred (before we got the job offer) and due to its non-refundable nature cannot be recovered as well.

When a cost is already been incurred and cannot be recovered, it is referred to as sunk cost.

Sunk cost are not taken into account while undertaking future decisions as this cost cannot be recovered and thus do not have any bearing on future decisions.

As payment for meal plans is a sunk cost, we should not take this payment into account while deciding whether to eat dinner at cafeteria or at the restaurant for free as part of our job offer.

Therefore, the assertion of our parents that we should eat dinner in the cafeteria anyway, since we have already paid for those meals is not a right assertion.