Motorola, Inc., originated a $5 billion project, called Iridium, that launched 66 low-earth-orbit satellites for global communication using pagers and mobile phones. After its operations began, the Iridium Project had technical and marketing problems. Instead of the 600,000 subscribers it was expected to have, it had only 55,000. A basic problem with the system was that a subscriber had to buy a mobile phone that cost $3,000 and weighed more than 1 pound. Few potential users wanted to do this. As a result, Iridium had to file for bankruptcy. Motorola, which had an 18 percent ownership of Iridium, had invested $1.6 billion and had to decide if it was willing to invest more in an effort to save the project. Some investors wanted to see Motorola cut its losses and move on. Others were concerned about recouping the enormous expenditure that had already been made.

What are sunk costs, and how do they differ from opportunity costs? How do these concepts apply to the decision by Motorola’s management to continue or discontinue support for the Iridium Project?