Consider one last time the case of Shane, who is considering selling his boat. As a...
Consider one last time the case of Shane, who is considering selling his boat. As a reminder:
Shane is considering selling his boat. He paid $5200 for the boat two years ago, and in the first year he owned it he incurred $600 in repairs and improvements, while in the second year he paid $200 for the same.
Shane has definitely decided to sell the boat. What he's not sure about is whether he should do $500 more in repairs before he sells it. He does some research and feels sure that if he does the repairs before selling he can get $4800 for the boat. If he doesn't, he can get $4400 for it.
Shane _______ repair the boat before selling it because marginal cost ____________.
A should not; is greater than marginal benefit
B should not; is less than marginal benefit
C should; is less than marginal benefit
D should; is greater than marginal benefit
Homework Answers
Ans.- (A)
By repairing the boat,he will get only 400 extra but he is spending 500 for its repair. So, marginal benefit i.e.400 is less than marginal cost i e.500.Hence he shouldn't repair the boat.
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