What is the role of sunk costs/fixed costs/variable costs for R&D in innovation?
This was selected as Best Answer Sunk costs are those you’ve already paid (i.e. money you’ve given to someone else). Fixed costs are costs that do not scale up as you increase the amount of production/activity in your business. Variable costs increase (or in some cases decrease) as you scale up the size of your operation. In R&D, you can analyse the past return on your sunk costs (i.e. past R&D projects) to return expected returns. Alternatively, you can analyse the returns on sunk costs of your competitors if such data is available. Fixed costs are often the costs of real estate and machinery that is necessary for research. Often this is a relatively insignificant part of costs in R&D. Variable costs are much more concerning in R&D, as you have to hire the best in your field, as well as pay for the most up-to-date technology, tools and supplies. Since you are required to pay for the newest tools to do your R&D, you have to pay a premium to get these tools over what you would have had
