Sunk costs are costs that:

• A. represent future expenditures that can be changed
• B. can be avoided by not producing any output
• C. vary with the level of output produced
• D. have already been incurred and cannot be recovered

Answer: (D)

Verified step by step guidance

1. Understand the definition of sunk costs: these are costs that have already been incurred and cannot be recovered regardless of future actions.
2. Recognize that sunk costs are not relevant for future decision-making because they do not change with the level of output or production decisions.
3. Compare sunk costs with other types of costs such as variable costs (which vary with output) and avoidable costs (which can be eliminated by not producing).
4. Identify that sunk costs differ from future expenditures because sunk costs cannot be changed or avoided, while future costs can be influenced by current decisions.
5. Conclude that the correct characterization of sunk costs is that they have already been incurred and cannot be recovered.