PRC-3 · Chapter 12 · Question 25 of 69
A firm invests Rs. 20 million researching a new drug that fails clinical trials and is abandoned. The money cannot be recovered. When making future financial decisions, economists advise that this Rs. 20 million should be treated as a:
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) Sunk cost and ignored
Explanation
Sunk costs are past expenses that cannot be recovered. Rational economic decision-making requires ignoring sunk costs and focusing only on future marginal costs and benefits.
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