In analyzing the decision to shut down in the short run we assume that the firm's fixed costs are
A)implicit costs.
B)capital costs.
C)nonmonetary opportunity costs.
D)sunk costs.

Question

Quizplus · Accepted Answer

In the short run, fixed costs are considered sunk costs that cannot be recovered. Therefore, shutting down in the short run would not result in any savings on fixed costs. Only variable costs can be reduced or avoided by shutting down in the short run. Therefore, fixed costs are irrelevant to the decision to shut down, making them sunk costs.

In Analyzing the Decision to Shut Down in the Short