Question

Sunk or opportunity cost

• Explain the difference between a sunk cost and an opportunity cost and give an example of each.

Answer 1

Sunk cost is the cost which has already been incurred or which will not be impacted by the any decision in future.

Oppt cost is the cost which is cost resulting from the decision of accepting or rejected any project.

example of Sunk cost : Cost incurred for market research of new product to be launched. This cost is already been incurred therefore it will not change any decision of accepting or rejecting the project.

Oppt cost : Suppose we have a plant which can be either let out or used for the new project. If we will use this plant for the new project than $ sacrificed for letting out the plant is the opportunity cost.