An ice-cream street vendor operates out of a small truck. He considers replacing the truck with a larger one but decides not to.
Apply the appropriate label to each cost.
increased profits that would have been made possible by a larger truck
~opportunity cost
[Profits not realized because of the decision not to purchase the bigger truck are an opportunity cost]
cost of buying ice cream from wholesaler each week
~variable cost
[Since the total cost from ice cream rises as more units are sold, it is a variable cost]
annual fee for operating permit
~fixed cost
[Since the fee doesn't vary with the number of ice cream cones sold, it is a fixed cost]
purchase cost of current truck (paid off last year)
~sunk cost
[The truck expense is in the past and should not be a factor in ongoing business decisions]