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Marginal Costs and Marginal Benefits Sample Problem

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You are selling your 1995 Honda Civic. You have already spent \$1000 on repairs.
At the last minute, the transmission dies. You can pay \$500 to have it repaired, or sell the car "as is."
In each of the following scenarios, should you have the transmission repaired? Explain.
A. Blue book value (what you could get for the car) is \$6500 if transmission works, \$5700 if it doesn't
B. Blue book value is \$6000 if transmission works,  \$5600 if it doesn't

https://brainmass.com/economics/cost-benefit-analysis/marginal-costs-marginal-benefits-sample-problem-599822

Solution Preview

Cost of fixing transmission = \$500
A. Blue book value is \$6500 if transmission works,  \$5700 if it doesn't
Benefit of fixing transmission = ...

Solution Summary

This solution helps students understand that the only relevant costs are marginal costs and marginal benefits, and that not all prior expenses are relevant to decision making

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