You are planning to run a hot dog stand during a forthcoming fair. You originally estimated that you will generated sales revenue of Rs 2000 and you have already spent Rs 1000 building the hot dog stand. The hot dog stand is nearly completed but now you estimate total sales to be only Rs 800 because the fair clashes with a major music festival in a nearby location. You can complete the hot dog stand for another Rs 300 Your decision rule should be to complete the hot dog stand as long as the cost to complete the stand is less than ?
Correct answer: D. Rs 800
- A. Rs 300
- B. Rs 1000
- C. Rs 500
- D. Rs 800
Explanation
The Rs 1,000 already spent is a sunk cost and should not affect the decision. Completion is worthwhile if the remaining cost is less than the expected additional revenue of Rs 800, so the threshold is Rs 800.
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Individual consumers, firms and markets are examined through demand and supply, elasticity, consumer choice, production, costs, revenue and the determination of prices and output. The topic also covers market structures such as perfect competition, monopoly and oligopoly, plus market failure, externalities and the distinction between microeconomic decisions and economy-wide outcomes.
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