Which type of cost is incurred in the past and cannot be recovered?

Sunk costs are those expenses that have already been incurred and cannot be recovered regardless of future decisions. This concept is crucial in economic decision-making, as it helps individuals and businesses avoid the fallacy of letting past costs influence current and future choices. For instance, if a farm has spent money on a particular piece of equipment that is no longer useful, that money is a sunk cost—it cannot be recovered and should not be considered when evaluating future options or investments.

In contrast, fixed costs refer to ongoing expenses that do not change with the level of production, like rent or salaries, while variable costs fluctuate according to production levels, such as seeds or labor directly tied to crop output. Direct costs are those that can be directly attributed to a specific product or service. Understanding the distinction between these cost types is vital in making informed financial decisions within agribusiness management.