Exercise on Applying the Principles of Economics (Cost and Benefit): Solutions

Question: Assume you are selling your MaBook after spending $100 on hardware repair.
Just before lunching the ad, the hard drive gets corrupted. Now, you have a choice either pay $60 to fix it or sell the laptop as it is.
For each of the following scenarios, should you have the hard drive fixed? Explain your answer.

Selling value is $650 if hard drive is operational, $570 it it does not.
Selling value is $600 if hard drive is operational, $550 it it does not.

Solutions:
Cost of repairing hard drive is $60.

Selling value is $650 if hard drive is operational, $570 it it does not.
Benefit of repairing hard drive = ($650 − 570) = $80
It is worth it to have the hard drive repaired.
Selling value is $600 if hard drive is operational, $550 it it does not.
Benefit of repairing hard drive is $50
It is not worth it to pay $60 to repair the hard drive

Note:

The $100 that was spent on fixing the hard drive would not matter.
What's important is the cost and benefit of the repair job.

The change in incentives from scenario A to B caused the decision to change.

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Date of last modification: 2021