Opportunity and Sunk Costs
In the preceding chapter, it was noted how the view that capital is stored (or embedded) labor can lead to problems in interpreting depreciation and whether or not depreciation is a component of long-run marginal cost. In this chapter, we shall look at some related questions involving opportunity costs and sunk costs, especially as they relate to costing and pricing issues in the regulated industries. The focus for the discussion will be questions raised by Richard Emmerson in a paper in a late-1990s volume on marginal cost techniques in the telephone industry sponsored by the National Regulatory Research Institute.
KeywordsOpportunity Cost Capital Cost Physical Capital Power Supply System Spot Market
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