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Fixed and Sunk Costs Revisited

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  • X. Henry Wang
  • Bill Z. Yang

Abstract

The authors attempt to clarify the concepts of, and the link between, fixed costs and sunk costs. They argue that the root for possible confusion between fixed costs and sunk costs is the inconsistency in defining the term fixed costs. They define fixed costs uniformly as the costs that are independent of the level of output and suggest that instructors refer to the part of fixed costs that are irrevocably committed as sunk costs . Under these definitions, the statement “there are no long-run fixed costs” is incorrect. Instructors should teach students that in the long run there are no sunk costs, although there may easily be fixed costs.

Suggested Citation

  • X. Henry Wang & Bill Z. Yang, 2001. "Fixed and Sunk Costs Revisited," The Journal of Economic Education, Taylor & Francis Journals, vol. 32(2), pages 178-185, January.
    • Handle: RePEc:taf:jeduce:v:32:y:2001:i:2:p:178-185
    DOI: 10.1080/00220480109595183
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    References listed on IDEAS

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    1. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, April.
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    Cited by:

    1. Amoroso, S., 2013. "Heterogeneity of innovative, collaborative, and productive firm-level processes," Other publications TiSEM f5784a49-7053-401d-855d-1, Tilburg University, School of Economics and Management.
    2. Chignell, Simon & Gross, Robert J.K., 2013. "Not locked-in? The overlooked impact of new gas-fired generation investment on long-term decarbonisation in the UK," Energy Policy, Elsevier, vol. 52(C), pages 699-705.
    3. Joseph G. Eisenhauer, 2018. "Algebraic Optimization: Marginal Analysis without Calculus," Journal for Economic Educators, Middle Tennessee State University, Business and Economic Research Center, vol. 18(1), pages 16-27, Spring.
    4. Yahya AlShehhi, 2016. "Is Training A Sunken Cost?," Annals of Faculty of Economics, University of Oradea, Faculty of Economics, vol. 1(1), pages 287-294, July.
    5. Mukherjee, Arijit & Zeng, Chenhang, 2022. "Social desirability of entry in a bilateral oligopoly—The implications of (non) sunk costs," Mathematical Social Sciences, Elsevier, vol. 118(C), pages 12-19.
    6. Sara Amoroso, 2014. "The hidden costs of R&D collaboration," JRC Working Papers on Corporate R&D and Innovation 2014-02, Joint Research Centre.
    7. Prince B. Annor & Simeon Kaitibie & Michael C. Lyne, 2023. "Heterogeneous impacts of GlobalGAP adoption on net income in small‐scale pineapple farming in Ghana: Does farm size matter?," Agribusiness, John Wiley & Sons, Ltd., vol. 39(4), pages 1199-1216, October.
    8. Sepulveda, Cristian F., 2020. "Explaining the demand and supply model with the cost-benefit rule," International Review of Economics Education, Elsevier, vol. 35(C).

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