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    Do Sunk Costs Matter in Decision Making?

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    People join tennis clubs for a fixed fee per year, which entitles them to play as much as they want without charge. Because people who pay these fees play more tennis than others (who can use free public courts), this means sunk costs matter for decisions. Right?
    When discussing the maximization of utility, regardless of whether you chose to work more hours or fewer when offered a higher hourly wage, you could not be worse off than you were at a lower hourly wage. Can you show this?

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    Solution Preview

    1. Wrong. A sunk cost is a cost that cannot be recovered regardless of what decision one makes. It should therefore not figure into decision making because it cannot be affected by the decision. The question is saying that serious tennis players pay the fixed fee to join a tennis club, then choose to play at the club in order to justify ...

    Solution Summary

    1. A sunk cost is a cost that cannot be recovered no matter what decision one makes. This solution uses the practical example of a tennis membership to illustrate whether sunk costs should play a role in decision making.
    2. The second solution proves why I cannot be worse off if my hourly wage rises, whether I choose to work more or less.