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Economics Fixed VS Sunk Costs

Customer Question

What is the difference between fixed and sunk costs? Can you think of real world examples of fixed costs that are not sunk and sunk costs that are not fixed?
Submitted: 11 years ago.
Category: Homework
Expert:  Bill replied 11 years ago.
Both fixed and sunk costs are very similar. Fixed costs are costs to a firm that do not vary with production. An example of this might be the a factory used by a firm for production. Within reason, this cost does not change when the firm increases or decreases output. You have to have a factory whether you produce 1 unit or 100 units of a good. Assuming you use the same factory for producing both numbers of goods, then this cost is fixed. A sunk cost is a cost that you've already paid, but that cannot be recovered. The factory, for example, is not sunk because the firm could sell the factory if it wanted. Let's assume this firm from before is the only producer of a certain good in the world. It is a highly specialized good and it requires very specialized tools to build. Assume these tools are useless unless they are used in the production of whatever the factory is making. If the firm decides to go out of business, there would be no buyers for those tools. The cost is already paid for, and cannot be recovered. These are sunk costs.

Hope that helps
Customer: replied 11 years ago.
Reply to Bill's Post: Hi,

Thanks for your answer! I just need a little clarification on that did you give the second example as an example of sunk costs that are not fixed?
Expert:  Bill replied 11 years ago.
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