*16. You have just purchased a new Ford Taurus for $20,000, but the most you cou

Question

*16. You have just purchased a new Ford Taurus for $20,000, but the most you could get for it if you sold it privately is $15,000. Now you learn that Toyota is offering its Camry, which normally sells for $25,000, at a special sale price of $20,000. If you had known before buying the Taurus that you could buy a Camry at the same price, you would have definitely chosen the Camry. True or false: From what we are told of your preferences, it follows that if you are a rational utility maximizer, you should definitely not sell the Taurus and buy the Camry. Explain.

I'm unable to understand, how the entire Camby expense adds up to $25000, since 15000+5000=$20000...... It'll be great if you explain this...

7:05PM Microeconomics an :- Ch 2 2A P 14P 15P 16P Chapter 1 Problem 16P Step 1 0 True. If you got $15,000 for the Taurus and paid that plus $5,000 more for the Camry, the entire Camry expense would have cost you $25,000. Since you have already shown that you did not want the Camry for $25,000, why would you spend that for it now? Chegg

Explanation / Answer

The cost of Taurus was 2000, maximum you can get is 15000. That means a loss of 5000.

Toyota normally sells for 25000. Special price =20000. That means a benefit of 5000. Also that the sale price may go up again.

Now if you compare both offers any rational consumer would go for Camry and not Taurus. The opportunity cost of buying Taurus is 25000.

Now if you sell the Taurus you will get 15000 though you bought it at 20000. you will have to add 5000 more. This means that Camry will cost you 25000(20000 the cost of Taurus +5000 that you will have to add up to buy Camry).

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