Which of the following options is NOT included in the marginal cost of a production decision?

• A. Sunk costs from previous investments
• B. Incremental energy costs for producing one more unit
• C. Extra labor needed to produce an additional unit
• D. Additional raw materials required for one more unit

Answer: (A)

Verified step by step guidance

1. Step 1: Understand the concept of marginal cost. Marginal cost refers to the additional cost incurred from producing one more unit of a good or service. It includes all costs that change as output changes.
2. Step 2: Identify the types of costs that typically affect marginal cost. These include variable costs such as extra labor, additional raw materials, and incremental energy costs, because these costs increase with each additional unit produced.
3. Step 3: Recognize what sunk costs are. Sunk costs are costs that have already been incurred and cannot be recovered. They do not change with the level of production and therefore do not affect marginal cost.
4. Step 4: Analyze each option in the problem: incremental energy costs, extra labor, and additional raw materials all vary with production and are part of marginal cost; sunk costs from previous investments do not vary with current production decisions and are excluded from marginal cost.
5. Step 5: Conclude that sunk costs from previous investments are NOT included in the marginal cost of a production decision because they are fixed and irrelevant to the decision of producing one more unit.