Question

A fast-food company spends millions of dollars to develop and promote a new hamburger on their menu only to find that consumers won't buy it because they don't like the taste. From an economic perspective, the company should _________.
A. keep the hamburger on the menu because they've spent so much money and time developing and promoting the product.
B. spend more money to develop a more efficient way to cook the hamburger so it cooks in a shorter time.
C. pull the hamburger off the menu and treat the development and promotion expenditures as a sunk cost.
D. keep trying to sell the hamburger so that people who developed and promote it have a job with the company.

Answer 1

Answer:

C. Pull the hamburger off the menu and treat the development and promotion expenditures as a sunk cost.

Explanation:

As they have already spent millions of dollars to develop and promote a new hamburger on their menu and they have come to a conclusion that consumers are not going to buy their hamburger because they did't like the taste. From an economic perspective, the company should pull the hamburger off the menu and treat the development and promotion expenditures as a sunk cost. They should not continue wasting and putting more time and efforts into the project, if they continuing doing so then it will termed as an escalating commitment which is the the tendency of organizations to invest time and money in a solution despite strong evidence that is not appropriate. It occurs when one person does not stop putting and allocating resources, time and efforts to a failing project or plan or action. For example, if we continue working for the employer which we do not like, companies continue to invest in a technology which is no longer needed or is going to be eroded in the very near future etc. Here they should take off it from the menu and treat its cost as a sunk cost which is not going to be recovered in any way.