Also found in: Medical.
Costs that have been incurred and cannot be reversed.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.
Money that has already been spent. Sunk costs are important because a company may use, for example, an old piece of equipment to make a new product. In this case, sunk costs are positive because no further investment is required. On the other hand, a sunk cost may be negative; for example, that old piece of equipment may break down after its warranty has expired. This means that the owner will not recover the costs no matter what happens.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved
sunk costsany expenditure on durable and specific FACTOR INPUTS, such as plant and machinery, that cannot be used for other purposes or easily be resold. Such sunk costs have no affect on MARGINAL COSTS and do not influence short-term output decisions.
The presence of sunk costs through investment in TRANSACTION-specific assets can affect the relative bargaining power of parties to a CONTRACT. See ASSET SPECIFICITY. See also OPPORTUNITY COST, BARRIERS TO EXIT.
Collins Dictionary of Economics, 4th ed. © C. Pass, B. Lowes, L. Davies 2005