Sunk cost

Sunk cost is cost that cannot be avoided, regardless of what is done in the future, because it have already been incurred.

Lets say for example you wrote a book and 1000 copies was produced. You can calculate the average cost per book by dividing the total cost so far by the number of copies. If however you are considering a second printing, the cost of writing and editing the book is no longer relevant. These are sunk cost that have already been incurred and nothing you do will change it. The only cost you need to worry about for the second printing is the marginal cost.

For the first printing, the total cost can be divided by the number of books.  For the second printing, the cost of writing the book, making the plates (sunk cost) can be ignored, because it have already been incurred.

References

Karl E. Case, Ray C.Fair, Principles of economics.  Seventh Edition, Pearson Prentice Hall, 2004, Chapter 1

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