A firm decides to purchase a computer for $1,500 at the end of the month. The computer will be used for administrative purposes that do not vary with the volume of product that the firm makes. The computer has no re-sale value. This is a fixed cost. At the beginning of the month, this cost is non-sunk.

Question

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A fixed cost is a cost that does not vary with the volume of product a firm makes. The fact that the computer has no resale value reinforces the idea that this cost is fixed. At the beginning of the month, the cost is non-sunk since it has not yet been incurred, but at the end of the month, it becomes a sunk cost. A fixed cost is a cost that does not vary with the level of production or sales volume. In this case, the purchase of the computer for administrative purposes is a fixed cost as it is not affected by the volume of product that the firm makes. Additionally, it is non-sunk at the beginning of the month because it has not yet been incurred.

A Firm Decides to Purchase a Computer for $1,500 at the End