Answer to Question #191340 in Microeconomics for aniket nayak

Question

George has spent Rs.5000 purchasing and repairing an old console, which he expects to sell for Rs. 8000 once the repairs are complete. He discovers that he needs an additional repair, which will cost Rs. 4000, in order to complete the repairs or he can sell the console as it is now for Rs.3000. What should he do? 

Answer 1

Solution:

Total initial cost (Purchasing and repairs) = Rs.5,000

Additional repairs                                      = Rs.4,000

Total cost                                                   = Rs.9,000

If George sells the old console now at Rs.3,000, he will incur a loss of Rs.2,000

Profit or Loss = Revenue - Cost

= Rs.3,000 – Rs.5,000 = Rs.2,000

Loss incurred = Rs.2,000

If he completes the full repair, his total cost will shoot to Rs.9,000 and if he sells it at Rs.8,000, he will incur a loss of Rs.1,000.

Profit/Loss = Revenue - Cost

= Rs.8,000 – Rs.9,000 = Rs.1,000

Loss incurred = Rs.1,000

Therefore, George should complete the repairs and sell the old console at Rs.8,000 since the loss incurred will be less compared to selling the console as it is now for Rs.3,000.