Economics Monopolistic Competition Questions
Sunk costs in monopolistic competition refer to the expenses that a firm has already incurred and cannot be recovered, regardless of the firm's future decisions. These costs are typically associated with investments in fixed assets, such as machinery, equipment, or research and development. In monopolistic competition, firms may face high sunk costs when entering the market or developing new products. These costs act as a barrier to entry, as potential competitors may be deterred by the risk of not being able to recover their initial investments. Sunk costs also affect a firm's pricing decisions, as they need to cover these costs in order to stay in business. However, in the long run, firms can adjust their prices and production levels to minimize the impact of sunk costs and maximize their profits.