My wife and I are having a disagreement as to what it means. She says that it means the cost of something you purchased some time ago, and had you not purchased it the money would be gone anyway.
Basically, 3 years ago we decided to purchase something to hold onto and sell later on when the value goes up. She says that the purchase price can be considered as profit since it was so long ago. I disagreed. Anyway, she calls it “sunk cost”.
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Sunk cost is money you spend that you cannot get back.
So you want to make a lemonade stand. Wherever you live requires a permit to sell lemonade, so you buy a permit for $20. You now have a permit which you cannot sell, whether or not you make lemonade you have $20 in sunk cost into the permit.
You can sell any lemons, sugar, water or any combination thereof. The lumber you use to build the stand can be sold. This permit is non-transferable. Though you have a permit, the money you spent to get it is “sunk”.
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