Martin Chuzzlewit purchased a vacant lot outside of London for £1,350,000 because he heard that a...

Martin Chuzzlewit purchased a vacant lot outside of London for £1,350,000 because he heard that a shopping mall was going to be built on the other side of the road. He figured that he could make a bundle by putting in a fast-food outlet on the site. As it turned out, the rumor was false. A sanitary landfill was located on the other side of the road, and Martin’s land was worthless. (£ denotes the British monetary unit, pounds sterling.)

Required:
With respect to the economic characteristics of costs, what type of cost is the £1,350,000 that Chuzzlewit paid for the vacant lot?

Multiple Choice

Opportunity cost
Administrative cost
Sunk cost
Selling cost
Differential cost

Solutions

Expert Solution

Answer to the given question would be Sunk Cost. As sunk cost is the cost which has already been incurred and it cannot be recovered back.

Opportunity cost is the loss of benefit of other options that happens, when one option is choosen

Administrative cost is the cost incurred to meet the costs of general administration of the company

Selling cost is the cost incurred to carry out any sale

Differential cost is the difference between the cost of two options.

ekkarill92 answered 2 years ago

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