ECON 230D1 Chapter 7: Chapter 7.docx
11 Mar 2014
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If office space is owned, not rent to be paid. However, office could have been rented out, and economist says opportunity cost is the amount of rent forgone. Missed out opportunity to make money in return for using office. Should be included in economic cost of doing business. Opportunity cost is hidden but is taken into account when making economic decisions. Sunk cost is not hidden, expenditure has been made and cannot be recovered, do not take into account when making economic decisions. If there is no alternative use to a purchase that have already been made, its opportunity cost is zero. Is investing in something economical (will it lead to flow in revenue that will justify cost) Nearly all costs become variable in the long term. Fixed costs affects the firm s decisions moving forward, sunk costs do not.
