Asked by Ashley Friend on Apr 27, 2024
Verified
Which of the following statements demonstrates an understanding of the importance of sunk costs for decision making? I. "Even though I hate my MBA classes, I can't quit because I've spent so much money on tuition."
II) "To break into the market for soap our firm needs to spend $10M on creating an image that is unique to our new product. When deciding whether to develop the new soap, we need to take this marketing cost into account."
A) I only
B) II only
C) Both I and II
D) Neither I nor II
Sunk Costs
Costs that have already been incurred and cannot be recovered or altered by future actions.
MBA Classes
Advanced business courses aimed at professionals and students seeking a Master of Business Administration degree.
Marketing Cost
Expenses associated with promoting and selling a product or service, including advertising, market research, and distribution costs.
- Analyze the role and importance of sunk costs in economic and business decisions.
Verified Answer
TD
Trever DesireeMay 01, 2024
Final Answer :
B
Explanation :
Statement II demonstrates an understanding of sunk costs by recognizing that the $10M spent on creating a unique image for the new soap is a cost that cannot be recovered even if the project is abandoned. Therefore, it must be taken into account when making the decision to develop the new soap. Statement I does not demonstrate an understanding of sunk costs, as the money spent on MBA classes is a sunk cost that should not be considered in the decision to continue or quit.
Learning Objectives
- Analyze the role and importance of sunk costs in economic and business decisions.