Kevin is re-finishing an antique grandfather clock that he purchased at a flea market for $300.He expects to be able to sell the clock for $450.At the last minute,Kevin discovers that he needs to repair the gears at a cost of $175 to make the clock worth $450 to potential buyers.It turns out that he could also sell the clock now,without completing the additional repairs,for $250.What should Kevin do?
A) He should sell the clock now for $250.
B) He should keep the clock but not make the repairs since the original $300 is a sunk cost.
C) He should complete the additional repairs and sell the clock for $450.
D) He should keep the clock after making the repairs since it is not rational to spend a total of $475 on an item that can only be sold for $450.
E) Kevin is indifferent between selling the clock as is or selling it after completing the repairs.

Question

Quizplus · Accepted Answer

Kevin should complete the additional repairs and sell the clock for $450. Even though he would have to spend $175 on repairs, he would be able to sell the clock for $450, making a profit of $275 ($450 - $175 - $300). If he were to sell the clock now without completing the repairs, he would only be able to sell it for $250, making a profit of only $50 ($250 - $300). Therefore, completing the repairs and selling it for $450 is the most profitable option for Kevin.

Kevin Is Re-Finishing an Antique Grandfather Clock That He Purchased