Question

A firm purchased copper pipes a few years ago at ​$2 per pipe and stored​ them, using them only as the need arises. The firm could sell its remaining pipes in the market at the current price of ​$8. What is the opportunity cost of each pipe and what is the sunk​ cost?

Answer 1

Answer:

The opportunity cost of each pipe and sunk cost of each pipe is $ 8 and $6 respectively.

Explanation:

Opportunity cost: The opportunity cost is that cost which gives the best alternatives options.

Sunk cost: The sunk cost is that cost which is incurred in the past and hence, not recovered in the future.

So, in the given question, the opportunity cost is $8 per pipe as it reflects new current price whereas, the sunk cost is $6 per pipe ($8 per pipe - $2 per pipe) that cannot be recovered in the future