Explore BrainMass
Share

# Problems with distinguish "sunk costs" and "variables costs

This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

Need in answering the attached problems...

https://brainmass.com/economics/elasticity/problems-with-distinguish-sunk-costs-and-variables-costs-363177

#### Solution Preview

1. First, we should distinguish "sunk costs" and "variables costs. Sunk costs are fees that you have paid and does not come back even if you don't produce anything. Variable costs are fees that you pay as you generate revenue, and once you stop producing, then you no longer incur variable costs.

It is quite clear that labour and rent are sunk costs (because you signed a lease, so that money does not come back regardless of your decision regarding getting the new copier). So we should not consider this cost in our decision making process.

We are given that we can sell 500,000 coloured copies/year, with 0.1/copy. This means that the revenue is \$50,000. The cost of paper is 0.02/copy, which means that selling 500,000 copies incurs 10,000. No costs for ink is mentioned in the question, so I assume that either 0.02/page includes ink, or buying the photocopier comes with ink with will last for 1 year.

With these information, we can make a ...

#### Solution Summary

Problems with distinguish "sunk costs" and "variables costs.

\$2.19