Question

​Zane's Vanes is a service that restores old weather vanes. Zane has just spent​ $125 purchasing a​ 1920s-era weather vane which he expects to restore and sell for​ $500 once the work is completed. After having spent​ $125, Zane realizes that he will need to spend an additional​ $200 on materials to complete the restoration.​ Alternatively, he can sell the weather vane without restoring it for​ $200. What is his marginal benefit if he sells the weather vane without restoring​ it?

Answer 1

The marginal benefit from selling the vane without restoring it is $200.

Step-by-step explanation:

Marginal benefits are the extra income a company can get from selling one additional unit of production.

Zane had already spent $250 in purchasing the vane and the restoration process.

Zane has two options:

1. Sell the vane as it is for $200.
2. Keep restoring the vane, spend $200 more and sell the vane for $500.

If Zane decides to sell the vane as it is, his marginal benefit will be $200. That would not be enough to cover his costs, this transaction will result in a $50 loss.

If Zane decides to continue the restoration, then his marginal costs will be $200 extra, but his marginal benefit would be $500. If he chose this option he could end up earning a $50 profit.