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.