1. Define and compare the following types of cost:
Sunk cost versus incremental cost
Fixed cost versus variable cost
Incremental cost versus marginal cost
Opportunity cost versus out-of-pocket cost
Point out which of the above costs are considered “relevant” and which are considered “irrelevant” to a business decision. Explain why.
2. Overheard at the water cooler: “ I think our company should take advantage of economies of scale by increasing our output, thereby spreading out our overhead costs.” Would you agree with this statement (assuming this person is not your boss)? Explain.
