Managerial Economics
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During a coffee-room debate among several young MBAs who had recently graduated, one of the young executives flatly stated, "The most this company can lose on its Brazilian division is the amount it has invested (its fixed costs)." Not everyone agreed with this statement. In what sense is this statement correct? Under what circumstances could it be false? Explain.
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This statement is correct in the context of sunk costs. Sunk cost are the cost which has been incurred in the past and can't be modified now. As per money terms.co.uk, "Sunk costs are sums that have already been spent and can not be recovered. The concept is important because sunk costs are irrelevant to financial decisions. Many people tend ...
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