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In the example 7.2 the author provides the different cost components (sunk, fixed and variable) of three industries - computers, software and pizzas. Choose any one industry and discuss the main cost components of this industry

In the example 7.2 the author provides the different cost components (sunk, fixed and variable) of three industries - computers, software and pizzas. Choose any one industry and discuss the main cost components of this industry

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
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In the example 7.2 the author provides the different cost components (sunk, fixed and variable) of three industries - computers, software and pizzas. Choose any one industry and discuss the main cost components of this industry.

SUNK, FIXED, AND VARIABL E COSTS: COMPUTERS, SOFTWARE, AND PIZZAS EXAMPLE 7.2 It is important to understand the characteristics of production costs and to be able to identify which costs are fixed, which are variable, and which are sunk. Good examples include the personal computer industry (where most costs are variable), the computer software industry (where most costs are sunk), and the pizzeria business (where most costs are fixed). Because computers are very similar, competition is intense, and profitability depends on the ability to keep costs down. Most important are the cost of components and labor. A software firm will spend a large amount of money to develop a new application. The company can recoup its investment by selling as many copies of the program as possible. For the pizzeria, sunk costs are fairly low because equipment can be resold if the pizzeria goes out of business. Variable costs are low-mainly the ingredients for pizza and perhaps wages for a workers to produce and deliver pizzas.
Transcribed Image Text:SUNK, FIXED, AND VARIABL E COSTS: COMPUTERS, SOFTWARE, AND PIZZAS EXAMPLE 7.2 It is important to understand the characteristics of production costs and to be able to identify which costs are fixed, which are variable, and which are sunk. Good examples include the personal computer industry (where most costs are variable), the computer software industry (where most costs are sunk), and the pizzeria business (where most costs are fixed). Because computers are very similar, competition is intense, and profitability depends on the ability to keep costs down. Most important are the cost of components and labor. A software firm will spend a large amount of money to develop a new application. The company can recoup its investment by selling as many copies of the program as possible. For the pizzeria, sunk costs are fairly low because equipment can be resold if the pizzeria goes out of business. Variable costs are low-mainly the ingredients for pizza and perhaps wages for a workers to produce and deliver pizzas.
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