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Static efficiency
Published in Peter M. Schwarz, Energy Economics, 2023
A core concept in economics is opportunity cost. Opportunity cost measures cost in terms of the best forgone alternative. Marginal cost reflects opportunity cost. Total cost includes all costs. The short run (SR) is a period in which there is at least one fixed input. In the short run, there are fixed costs (FC)—costs such as capital costs that do not change with output—and variable costs (VC)—costs such as labor and energy that change with output. As output increases, fixed costs do not change, so they are not part of marginal or opportunity cost in the short run, and are therefore irrelevant to short-run decision-making. Sunk costs are fixed costs that have taken place in the past and cannot be recovered. If a company closes a coal plant and cannot sell it, the cost is sunk, whereas if the plant can be converted to a natural gas plant, there is still value to the original investment. In the long run (LR), all costs are variable, including capital costs, since the plant can be bought or sold in the long run.
Costs
Published in David Shirley, Project Management for Healthcare, 2020
Sunk costs are costs that are unrecoverable. No matter what future circumstances occur on the project, these particular costs will not be recovered. This can cause a serious dilemma between the project manager and the project's stakeholders. Sometimes sunk costs are used to justify continuing a project. Large amounts of money (time can also be translated into money) have been spent on the project. In the face of, “We've already spent millions on this project; therefore, we need to continue it,” the project manager must view the project from this point in time going forward, not this point in time looking backward and forward. If the project, according to the project team, financially doesn't make sense going forward, then the project doesn't make sense going forward, no matter how much time and effort was spent on the project. Pressure may be exerted to continue a project that does not make any sense to the project manager to continue; therefore, the project manager must carefully document the reasons for discontinuing a project for cause.
Airline Cost Classifications
Published in Bijan Vasigh, Ken Fleming, Liam Mackay, Foundations of Airline Finance, 2018
Bijan Vasigh, Ken Fleming, Liam Mackay
Once these initial starting costs have been incurred, they should not be taken into consideration for future decisions since once the costs have been incurred they cannot generally be recuperated.2 By definition, sunk costs are any expenses that have already been incurred and therefore cannot be recuperated. As mentioned, sunk costs should not be used in making any future operating decisions as they have no bearing on any future outcome; however, managers often let sunk costs factor into their decision making, especially when deciding whether to continue to stay in business. Managers may think that they should remain in business, even when there is no hope of making a profit, because the company has already “spent all the money”. Often called the sunk cost fallacy, managers believe that they must get use out of their start-up equipment even when it is not profitable.
Value proposition of predictive discarding in semiconductor manufacturing
Published in Production Planning & Control, 2022
Geert van Kollenburg, Mike Holenderski, Nirvana Meratnia
In economic terms, the cost of resources already spent up until a certain point are called ‘sunk cost’ (Mankiw 2004). Sunk costs should not influence a decision-making process (such as whether to discard a wafer). The cost of resources required to finish a product are called ‘avoidable costs’ (Garrison et al. 2003). These avoidable costs are saved if a correct decision is made and are therefore crucial to the calculation of the benefits offered by predictive discarding. For the sake of generality and ease of calculation, we set the marginal costs of the resources required to produce a single wafer to 1 and denote it as Cprod. The relation between (marginal) avoidable costs Cavoid and (marginal) sunk costs Csunk can then be defined as: