On the Treatment of Fixed and Sunk Costs in the Principles Textbooks

Abstract

The author argues that, although the standard principles level treatment of fixed and sunk costs has problems, it is logically consistent as long as all fixed costs are assumed to be sunk costs. As long as the instructor makes that assumption clear to students, the costs of making the changes recently suggested by X. Henry Wang and Bill Z. Yang in the Journal of Economic Education are greater than the benefits.

Keywords:

• fixed costs
• sunk costs
• teaching principles of economics