Question

Are fixed costs also sunk costs? Explain.

Short answer

Fixed costs are not always considered sunk costs.

Step-by-step solution

Step 1. Introduction

Fixed Cost: A cost that stays constant regardless of output volume.

For instance, rent and insurance premiums.

Sunk Costs: A sunk cost is a cost that has been incurred but cannot be recovered in economics.

Step 2. Explanation

All buried expenses are considered fixed costs in economics. Not all fixed expenses, however, are deemed sunk.

Sunk costs are costs that cannot be recovered, according to their definition.

Fixed costs are not sunk in the following situations: equipment can be resold or returned at the purchase price, but sunk expenses cannot be recovered.

Sunk expenses are incurred by both businesses and individuals.

For example, if a person drives to the store to buy an air conditioner, he may decide not to buy it after he there. As a result, the fuel consumed in the drive is deemed a sunk cost, and the client cannot seek reimbursement from the gas station or the electronics store for the distance.

Businesses, on the whole, are more concerned with sunk expenses and fixed costs than with individual customers.