Identification of Relevant Costs
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Paul and Paula Petroceli were trying to decide whether to go to the symphony or to the baseball game.
They already have two nonrefundable tickets to â??Pops Night at the Symphonyâ? that cost $40 each.
This is the only concert of the season they considered attending because it is the only one with the type of music they enjoy. The baseball game is the last one of the season, and it will decide the league championship. They can purchase tickets to the game for $20 each.
The Petrocelis will drive 50 miles round-trip to either event. Variable costs for operating their auto are $.18 per mile, and fixed costs average $.13 per mile for the 15,000 miles they drive annually.
Parking at the symphony is free, but it costs $6 at the baseball game.
To attend either event, Paul and Paula will hire a babysitter at $7 per hour. They expect to be gone
5 hours to attend the baseball game but only 4 hours to attend the symphony.
Compare the cost of attending the baseball game with the cost of attending the symphony. Focus on relevant costs. Compute the difference in cost, and indicate which alternative is more costly to the Petrocelis.
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Solution Summary
Paul and Paula Petroceli were trying to decide whether to go to the symphony or to the baseball game.
They already have two nonrefundable tickets to Pops Night at the Symphony that cost $40 each.
This is the only concert of the season they considered attending because it is the only one with the type of music they enjoy. The baseball game is the last one of the season, and it will decide the league championship. They can purchase tickets to the game for $20 each.
The Petrocelis will drive 50 miles round-trip to either event. Variable costs for operating their auto are $.18 per mile, and fixed costs average $.13 per mile for the 15,000 miles they drive annually.
Parking at the symphony is free, but it costs $6 at the baseball game.
To attend either event, Paul and Paula will hire a babysitter at $7 per hour. They expect to be gone
5 hours to attend the baseball game but only 4 hours to attend the symphony.
Compare the cost of attending the baseball game with the cost of attending the symphony. Focus on relevant costs. Compute the difference in cost, and indicate which alternative is more costly to the Petrocelis.
Solution Preview
In this case, the cost of the symphony tickets is a sunk cost; they spent the money before and cannot recover it. Therefore, it is not relevant to this decision. The travel cost is not relevant to this decision because it does not change based upon the alternative ...
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