Expenses that cannot be recovered if a business collapses, such as lease and license fees, are called what?

Expenses that cannot be recovered if a business collapses, such as lease and license fees, are called what?

• A. fixed costs
• B. sunk costs
• C. variable costs
• D. opportunity costs

Answer: (B)

Sunk costs are costs that have already been incurred and cannot be recovered, even if the business collapses. Lease and license fees fit this idea because once the money is spent, it’s unrecoverable and should not influence future decision-making. In other words, what matters for future choices are costs and benefits going forward, not payments that are already gone. For context, fixed costs are the expenses that don’t vary with output in the short run (like rent), variable costs change with production, and opportunity costs are the benefits you give up by choosing one option over another.

Sunk costs are costs that have already been incurred and cannot be recovered, even if the business collapses. Lease and license fees fit this idea because once the money is spent, it’s unrecoverable and should not influence future decision-making. In other words, what matters for future choices are costs and benefits going forward, not payments that are already gone.

For context, fixed costs are the expenses that don’t vary with output in the short run (like rent), variable costs change with production, and opportunity costs are the benefits you give up by choosing one option over another.