Sunk cost
Definition. A sunk cost is an expenditure that has already been incurred and cannot be recovered whatever a firm decides to do next, such as money spent on non resaleable, specialised equipment or on advertising. Because it cannot be retrieved, it should be ignored in forward looking decisions.
Rational decision making weighs only future costs and benefits, so sunk costs are irrelevant at the margin. Treating them as relevant leads to the sunk cost fallacy of continuing simply because money has already been committed.
This term belongs to Opportunity Cost in A Level Economics. Read the full chapter for the diagrams, worked examples and exam technique.
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