1. Pookie\'s Pinball Palace restores old Pinball machines Pookie has just spent
ID: 1164011 • Letter: 1
Question
1. Pookie's Pinball Palace restores old Pinball machines Pookie has just spent S300 purchasing and cleaning a 1960s-era machine which he expects to sell for $2,000 once he is finished with the restoration. After having spent $300, Pookie discovers that he will need to rewire the entire machine at a cost of $1,100 in order to finish the restoration. Alternatively, he can sell the machine "as is" now for $1,000 a) What is his marginal benefit if he sells the machine "as is" now? b) Wha t is the marginal cost of completing the task? o Should he sell the machine now, or finish the restoration first and then sell it?Explanation / Answer
1). The marginal benefit that he can have if he sells the machine as is now is (Price he can get if he sells the machine now - the cost of cleaning the machine) = 1000 - 300 = $700
2). The marginal cost for completing the cost is the extra cost that will be incurred other than what had been anticipated initially = $1100
3). The profit he gains if he sells the machine now = $700
Profit he gains if he sells the machine later = 2000 - (1100+300) = $600
Thus, he should sell the machine now.
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