On the Treatment of Fixed and Sunk Costs in Principles Textbooks: A Comment and a Reply

Abstract

The authors reply to Colander's comment in this issue on their earlier article (Wang and Yang 2001). They emphasize the necessity to define fixed cost differently than sunk cost because fixed vs. variable costs and sunk vs. avoidable costs classify the total costs from two different perspectives. They show that it is logically incorrect and inconsistent if fixed cost is a synonym of sunk cost. To avoid confusion in pedagogy and education of economics, they argue that fixed cost should be correctly defined in principles textbooks, rather than corrected later at more advanced levels.

Keywords:

• avoidable cost
• fixed cost
• sunk cost
• variable cost