MGMT 122 Lecture Notes - Lecture 6: Sunk Costs, Intermediate Good, Variable Cost
Document Summary
9 simple rules for making all decisions. 9 steps for decision making (seen before in week 3) Make sure you fully understand the economic environment. Make sure you"ve seen the intangible as well as the tangible. Make sure you"ve answered the question that needs answering. You need to identify which costs and revenues are affected by the decision. Incremental costs: these relate to cost drivers affected by the decision decision. Only costs and revenues that change across alternative choices are relevant to the analysis. Any non-differential costs/revenues should be ignored when doing the analysis in step 6. Sunk costs: resources already spent that can"t be gotten back, regardless of what you do: r&d for an unpromising drug, a phd in a field with poor job opportunities. Ancillary costs: anticipated costs that will occur regardless of the: play-doh has a limited number of colors. Adding colors would increase various costs, such as batch setup and tooling costs and packaging costs.
