Which of the following costs should be ignored when weighing the costs and benefits of an action?

• A. Sunk costs
• B. Opportunity costs
• C. Marginal costs
• D. Explicit costs

Answer: (A)

Verified step by step guidance

1. Step 1: Understand the definition of each cost type mentioned: Sunk costs are costs that have already been incurred and cannot be recovered; Opportunity costs represent the value of the next best alternative foregone; Marginal costs are the additional costs of producing one more unit of a good or service; Explicit costs are direct, out-of-pocket payments for inputs.
2. Step 2: Recognize that when making decisions about future actions, only costs that can be influenced by the decision should be considered.
3. Step 3: Identify that sunk costs are past costs that cannot be changed by any current or future decision, so they should not affect the decision-making process.
4. Step 4: Understand that opportunity costs, marginal costs, and explicit costs are relevant because they represent potential benefits lost, additional costs incurred, or actual payments that will be affected by the decision.
5. Step 5: Conclude that sunk costs should be ignored when weighing costs and benefits because they do not change regardless of the decision made.