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29 March, 15:47

A firm purchased copper pipes a few years ago at $2 per pipe and stored them, using them only as the need arises. The firm could sell its remaining pipes in the market at the current price of $8. What is the opportunity cost of each pipe and what is the sunk cost?

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  1. 29 March, 16:53
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    The opportunity cost of each pipe and sunk cost of each pipe is $ 8 and $6 respectively.

    Explanation:

    Opportunity cost: The opportunity cost is that cost which gives the best alternatives options.

    Sunk cost: The sunk cost is that cost which is incurred in the past and hence, not recovered in the future.

    So, in the given question, the opportunity cost is $8 per pipe as it reflects new current price whereas, the sunk cost is $6 per pipe ($8 per pipe - $2 per pipe) that cannot be recovered in the future
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