Summary
Incremental Markets
Relevant Cost Information
Info
Relevant cost information is the data that differs between alternatives in a decision-making process. It includes:
- Differential Costs: Costs that change between alternatives.
- Incremental Costs: Additional costs incurred when choosing one alternative over another.
Example
To travel from City A to City B, you can either drive your car or take a train. The relevant cost information includes:
- Driving: Gasoline costs, tolls, and wear and tear on your vehicle.
- Train: Ticket price and any additional transportation to and from the train station. Inrelevant const information would include fixed costs like car insurance or train station maintenance fees, as they do not change based on your choice.
Type of Relevant Costs
Opportunity Costs
- The benefit that could have been attained by pursuing an alternative course of action.
- Opportunity costs are not recorded to decisions
- Example: If you were not attending college, you could be earning 20,000.
Sunk Costs
- All costs incurred in the past that cannot be changed by any decision made now or in the future
- Sunk costs are not relevant to decisions
Out-of-pocket Costs
- Costs that require a future outlay of cash and are relevant to decisions
