Essay
Jim owns Nickelback Bar, dedicated to the rock band Nickelback. Jim pays his landlord, a strip mall, a $3,000 monthly rent. If Jim breaks the lease before the end of the calendar year, he is required to pay $2,000 for each of the remaining months. Jim just purchased $40,000 of Nickelback-themed bar fixtures; the fixtures have absolutely no value in any alternative use. Each weekend, Jim contracts with a security company that provides four security guards for a total of $1,200.
a. Is the $1,200 payment to the security firm a variable cost, sunk cost, or avoidable fixed cost? Explain your answer.
b. Suppose that at the end of August Jim permanently shuts down his bar. What are Jim's sunk costs?
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