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 PIZZASEXAMPLE 7.2It is important to understand the characteristics of production costs and to beable to identify which costs are fixed, which are variable, and which are sunk.Good examples include the personal computer industry (where most costs arevariable), the computer software industry (where most costs are sunk), and thepizzeria business (where most costs are fixed).Because computers are very similar, competition is intense, and profitabilitydepends on the ability to keep costs down. Most important are the cost ofcomponents and labor.A software firm will spend a large amount of money to develop a newapplication. The company can recoup its investment by selling as many copiesof the program as possible.For the pizzeria, sunk costs are fairly low because equipment can be resold ifthe pizzeria goes out of business. Variable costs are low-mainly theingredients for pizza and perhaps wages for a workers to produce and deliverpizzas.

Choosing Pizza Industry and the main component of this industry is Sunk Cost.

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

Essentials of Economics (MindTap Course List)

8th Edition

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter13: Firms In Competitive Markets

Section: Chapter Questions

Problem 4PA

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Question

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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