Practice question · Sort into groups
Sort each cost by its nature in the decision at hand.
Groups: Explicit cost · Opportunity cost · Sunk cost
- Last year’s failed ad campaign, already paid
- Cash paid for raw materials
- Interest the invested savings would have earned
- Salary the founder gave up to start the firm
Hints
- Ask whether the cost leaves a receipt, leaves no trace, or is already gone.
- Only two of the three should influence the decision at all.
Show the answer
Explicit cost: Cash paid for raw materials
Opportunity cost: Salary the founder gave up to start the firm, Interest the invested savings would have earned
Sunk cost: Last year’s failed ad campaign, already paid
Why
Explicit costs leave receipts, opportunity costs leave no paper trail but are just as real, and sunk costs should leave decisions entirely.
Practise Opportunity Cost
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