Sunk Cost

Sunk cost refers to costs that have already been incurred and cannot be recovered, such as preliminary market research expenses, equipment customization fees, and mold development costs already invested. In foreign trade, this commonly occurs when customers cancel orders, projects are terminated, or businesses pivot, requiring rational judgment on whether to continue additional investment. Usage scenarios include: quotation decisions, order selection, and contract breach handling. Note: Sunk costs should not influence current decisions; rational decision-making should only consider marginal costs and future benefits. However, in reality, people often fall into the 'sunk cost fallacy' due to reluctance, leading to greater losses. Difference from 'opportunity cost': Sunk cost is already incurred and unrecoverable, while opportunity cost is the value of the next best alternative forgone. Difference from 'fixed cost': Fixed costs do not vary with output but may be recoverable, whereas sunk cost emphasizes unrecoverability. Foreign trade practitioners should regularly evaluate projects, cut losses in time, and avoid being held hostage by sunk costs.