As I understand it, the reason why sunk cost is ignored is because decision-making is supposed to be completely future oriented (you can't make decisions to change the past). That doesn't mean that we should ignore sunk cost as a possible indicator of the future, e.g., sources of future profit. If you've almost finished building a bridge, the doctrine of sunk costs tells us that we should ignore the costs we paid to get the bridge 9/10 of the way across the river. But the fact that you're almost there suggests that the return from finishing the bridge would be high.
I'm not sure that the issue of sunk costs has much to do with the Cambridge controversy, which is more about issues of aggregation. On Thu, Sep 3, 2009 at 5:30 AM, Ann Davis<[email protected]> wrote: > > Beginning principles of micro one more time............the focus on marginal > costs and marginal benefits, ignoring sunk costs, seems to make very clear > how micro is simply ignoring the problem of capital. If capital investment > can be interpreted as "sunk costs," it is "irrelevant." Mainstream > economics has left this question entirely to "finance" and to accounting, it > seems. > > Michael Perelman's recent piece on "an Idiosyncratic Road to Crisis Theory" > also expands upon this issue, as well as Harcourt's book from 1972, > "Cambridge Controversies in the Theory of Capital" (as well as Michael's > other books). > > I add to my classes an alternative dynamic, within micro terminology, of the > competition to lower AVC, by moving down the long term AC curve, in the > increasing returns to scale section. But the investment decision is still > very vague, and this process leads again to the zero profit equilibrium > (which might be realistic within the context of perfect competition). > > How do others handle this frustration? Suggestions are most welcome. > > Ann > > > _______________________________________________ > pen-l mailing list > [email protected] > https://lists.csuchico.edu/mailman/listinfo/pen-l > -- Jim Devine / "laugh if you want to / really is kinda funny / cause the world is a car / and you're the crash test dummy" -- Devil Makes Three. _______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
