Which of the following are relevant costs when a firm attempts to decide on the best...
Which of the following are relevant costs when a firm attempts to decide on the best course of action_______?
| A. |
Sunk costs. |
|
| B. |
Opportunity costs or the cost of replacing one factor of
production by another. |
|
| C. |
All of the answers are relevant. |
|
| D. |
Historical costs. |
Homework Answers
Costs are an important consideration while making production decisions for any firm. The costs that firms take into consideration while making decisions are called relevant costs. To affect any decision, the costs should be relevant to current decisions. Sunk costs or retrospective costs are the costs that have already been incurred. They do not affect current decisions. Thus, they are not relevant. Historical costs refer to the original money value of a cost incurred. They also do not affect current decisions. Both these costs do not affect the future. However, opportunity cost gives the value of the second best alternative of an input or a decision. It significantly affects the best course of action. Thus, option b) is correct.
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