1. Define and compare the following types of cost:

1. Sunk cost versus incremental cost
2. Fixed cost versus variable cost
3. Incremental cost versus marginal cost
4. Opportunity cost versus out-of-pocket cost

Point out which of the above costs are considered "relevant" and which are considered "irrelevant" to a business decision. Explain why.

2. Overheard at the water cooler: " I think our company should take advantage of economies of scale by increasing our output, thereby spreading out our overhead costs." Assuming this person is not your boss, would this statement be true or false? Explain.