Rus Articles Journal

Whether it is worth worrying about irretrievable costs?

Are such saying: after fight do not wave fists. And matter is not that fight ended, that you can already do nothing with it - time will not return back an essence. You should not cry about loss - just live further. These reasons can be carried to what economists call " fully; irretrievable costs. These costs can be compared to the ships which sank in the sea: as soon as you incurred some expenses: money departured, and you cannot return them.

To understand what costs in practice are we will look how they are perceived by consumers, and then - businessmen. Present that you were lucky to buy the ticket for good, expensive places for the forthcoming football match. In the morning, in day of a match you woke up with high temperature - you have a flu. You feel very badly, but all - went outside - a frost of 10 degrees. Now you do not want on stadium at all, but here you remember that you gave a lot of money for the ticket. You ring round friends - somebody can will want to buy the ticket, but soon understand that nobody does not want to go there even if the ticket will be at a discount. All who needed the ticket already bought it. whether

It is worth going on a match? The economic analysis says to us that you should not take actions if the limit costs interfaced to them exceed limit profit. Here and in your case - the ticket price does not influence your decision in any way. Here and limit, or additional, expenses, and extreme, or additional benefits are quite transparent. If limit costs a campaign on stadium exceed extreme benefits from such campaign, then it is the best of all to remain in a bed. And you will come to such conclusion irrespective of how many you gave for the ticket, - 2 or 20 thousand rubles as the paid price - for something - is not connected with extreme benefit. You bought the ticket - and not to sell it to you therefore the ticket price does not influence the decision in any way. But as you do not want to go " there at all; limit costs of a campaign for stadium exceed extreme benefits from this campaign.

Here one more example of behavior of the consumer. Imagine that the family goes to holiday, they stop at roadside cafe and buy apples, Children jump in the car and bite into these apples - it becomes right there clear that so sour ill-fated apples that not to eat them. Parents agree: apples - real kislyatina but the father of family continues to eat and explains - we paid for them more expensively usual . But here the eldest son notices: Father, well and here it .

Of course, not too diplomatic remark, but the son it is right. When you make the new decision, you will not begin to consider the incurred expenses any more - the new decision cannot already affect them in any way. The bad decision in the past cannot dictate any more the new decision which has extreme benefits less limit costs. Let`s look now as business concerns react to irretrievable costs. Some types of expenses. business firms are not only fixed (repeating, but not connected by level of production expenses), but also just irretrievable.

For example if at the beginning of a year you brought a payment for rent of shop, then you will not be able to return these expenses any more. The decision of the company to move to the new, promising big benefit place, is not connected with that in any way, what is the time remained until the end of rent. If the new place promises benefit, big profits, then there is no sense to consider how many remained until the end of the year, - 300, 30 or 3 days.

And at the end we will follow an example from real life. In the last decades the Boeing and McDonnell Douglas companies competed in the world market of commercial planes. Each company spent millions of dollars for carrying out scientific and market researches in aspiration to overtake the rival in the market. And here in 1996 it was unexpectedly declared merge of the companies. Many observers were perplexed how the rivals who spent millions of dollars for competitive fight could forget suddenly the past and to agree to merge. But these expenses remained for them in the past and did not influence the decision in any way, it were irretrievable expenses. The decision sent to the future prompted to the management of both companies - everyone for own reason, - that extreme benefit from merge will be above limit costs.

So if expenses are already incurred, money left you, and them in any way - neither partially, nor, especially, entirely - not to return, then just it is the most reasonable to ignore them. Irretrievable costs do not make sense. Therefore it is better not to shake up hands air when fight is already ended.

the Best regards all!]