ECON 103 Lecture Notes - Sunk Costs, Historical Cost, Fixed Cost
13 Jan 2022
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Document Summary
Historical cost is usually the cost where accountant use as their measure of cost. Which are equal to the true cost, but it is completely irrelevant in measuring its actual cost. Opportunity cost is the value of highest forsaken alternative. To understand this concept better, remember that the opportunity cost always refers to an action. Where action imply there is a forgone alternative and therefore that will be the opportunity cost of it, and if there is no action or choice taken then there can be no cost. Total cost = historical cost + opportunity cost. It is a common mistake to always think of costs as a bad thing and to confuse the costs with bads. However, in every decision good things and bad things come along with that decision. The bad things however are not the costs of the decision unless they influence the value of the next best alternative.
