Describe the economic characteristics of sunk costs and opportunity costs, and explain the impact that these costs may have on decisions.
What will be an ideal response?
Sunk costs have already been incurred. They are part of history and cannot be altered. Therefore, sunk costs are not relevant for any current or future management decision.
Opportunity costs, in contrast, are relevant for current and future decisions. Such costs are defined as the net benefits from a decision alternative that was not selected-that is, the benefits were sacrificed to pursue another option.
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