The U.S. government has been trying to decide whether or not to invest in full p

Question

The U.S. government has been trying to decide whether or not to invest in full production of the new, advanced missiles that it has developed. One of the arguments in favor of the investment in the production is that since so much money has been spent on their development, it would be a waste of money not to invest on the project. What is the major problem with this argument?

a. It ignores the opportunity cost of the money that has been spent.

b. It includes sunk costs in the decision.

c. It includes opportunity costs in the decision.

d. It does not reflect changes in net working capital.

Explanation / Answer

Answer

b. It includes sunk costs in the decision.

Explanation: money already spent on the development of new, advanced missiles is sunk cost. It should not be considered while making decision related to investment of such project.

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