Question

Consider again Dave:

Dave collects old synthesizers. One he bought a few years back for $3400 he's decided to sell. Over the time he owned it, Dave did $160 in repairs and renovations.

In preparing to sell the synthesizer, he's told by a source he considers 100% reliable that he could sell it for $3800 as it currently is. If, however, he is willing to pay $300 for some additional cosmetic repairs, he's told he could definitely get $4200 instead.

Dave ____________ do the cosmetic repairs before selling because the marginal benefit of doing so is ________ than the marginal cost.

A.should not; greater

B. should; less

C. should not; less

D. should; greater

Answer 1

Dave's marginal revenue from this unit is 4200-3800 = 400 whereas marginal cost is 300

So he is getting $100 of profit from repair.

So dave should do the repairs before dealing as marginal benefits are more than marginal cost

Answer D)