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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A sunk cost is the cost incurred to enter into an economic activity, that cannot be recovered, even if you decide to back out.
So for example if you set up a business and purchase a bunch of equipment. You could potentially resell that equipment and recover some costs. So that’s not sunk.
But if you had to pay for some licenses in order to legally trade in an industry, and those licences couldn’t be resold, then that cost of license could be described as sunk.
I would say that she has somewhat misunderstood the meaning, or at least stretched its meaning to suit her point..
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