You plan to run a hot dog stand at a forthcoming fair. You expected Rs 2000 of sales and have already spent Rs 1000 building the stand. It is nearly finished, but because the fair now clashes with a major music festival nearby you expect sales of only Rs 800. Finishing the stand will cost another Rs 300. Your rule should be to complete the stand as long as the cost of completing it is below what amount?
Correct answer B. Rs 800
Explanation
The Rs 1000 already spent is a sunk cost and should be ignored. Finishing makes sense whenever the extra cost of completion is less than the extra revenue it brings, which is Rs 800.
Answer checked How we write and check questions
Discussion