Multiple Choice
Which statement below is true of both aggregate supply and aggregate demand?
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0. Basic Principles of Economics
Introduction to Economics
Multiple Choice
Which of the following is always an irrelevant cost when making future economic decisions?
A
Marginal cost
B
Explicit cost
C
Sunk cost
D
Opportunity cost
Verified step by step guidance1
Step 1: Understand the definition of each cost type: Marginal cost is the additional cost of producing one more unit; Explicit cost is a direct, out-of-pocket payment; Opportunity cost is the value of the next best alternative foregone; Sunk cost is a cost that has already been incurred and cannot be recovered.
Step 2: Recognize that relevant costs for future decisions are those that will change as a result of the decision, meaning they are avoidable or incremental.
Step 3: Identify that sunk costs are costs that have already been incurred and cannot be changed by any future decision, so they do not affect future economic choices.
Step 4: Compare sunk costs with the other costs: Marginal, explicit, and opportunity costs all can influence future decisions because they represent costs or benefits that vary with the decision.
Step 5: Conclude that sunk costs are always irrelevant in making future economic decisions because they cannot be recovered or altered by any current or future action.
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