Khaled's Furniture alters, reconstructs, and restores an old French chest. Khaled has just spent US$800 purchasing, cleaning and reconstructing the antique chest which he expects to sell for US$1,500. After having spent US$800, Khaled discovers that he would need some special wood that would cost him US$200 to complete the task. Alternatively, he can sell the chest "as is" now for US$900. What should he do?
A) It does not matter what he does; he is going to take a loss on his project.
B) he should not do anymore work on the chest because he has already spent too much time on it and has not been paid for that time
C) he should cut his losses and sell the chest now
D) he should purchase the wood, complete the task and then sell the chest

Question

Quizplus · Accepted Answer

If Khaled completes the chest, his total cost will be $800 (initial cost) + $200 (additional cost) = $1000. Selling it for $1500 would give him a profit of $500. Selling it now for $900 after spending $800 results in only a $100 profit. Completing the task maximizes his profit.

Khaled's Furniture Alters, Reconstructs, and Restores an Old French Chest