Stan buys a 1966 Mustang, which he plans to restore and sell. He anticipates that the cost of the car and the repairs will be $15,000 and that he can sell it for $19,000. When he has spent $15,000, he discovers he needs to replace the engine, which will cost $4000. He can sell the car without the new engine for $9000. What should Stan do?
A) He should complete the repairs and sell the car for $13,000.
B) He should sell the car now for $9000.
C) He should never try such an expensive project again.
D) He should be totally indifferent between finishing the project and selling the car now.

Question

Quizplus · Accepted Answer

Stan should be indifferent because both options result in a net loss of $1000. If he sells the car now for $9000, he loses $6000 ($15,000 - $9000). If he spends an additional $4000 to replace the engine and sells it for $19,000, he also loses $1000 ($15,000 + $4000 - $19,000).

Stan Buys a 1966 Mustang, Which He Plans to Restore