Question

Suppose you have purchased a non-refundable plane ticket and, at the last moment, you cannot take the trip. You can, however, sell the ticket. If you paid $700 for the ticket, the cost of sending the ticket to someone through overnight mail is $20, and you spend $10 on a courier to get the ticket to the post office for overnight delivery, what is the minimum you should accept for the ticket?

a) $700 because that is what the ticket cost.
b) $720 because that is the cost of the ticket and of getting it to the buyer.
c) $730 because that is the total cost of the ticket and getting it to the buyer.
d) More than $730, so that you can make a profit.
e) $30 because the $700 is a sunk cost.

Answer 1

E) $30 because the $700 is a sunk cost.

Step-by-step explanation:

The price of ticket is now a sunk cost, i.e. $700 and only minimum amount that can be earned and accepted is $30.

Sunk cost is an irreversible cost that is incurred because of faulty decision or less accurate forecast by companies or individuals, or even normal costs that is spent becomes a thing of past.

Usually decision makers choose not to spend more money on projects that incur more sunk costs and try to compensate that by making new ways. Sunk costs are like fires shot from a gun; you cannot recover them by any means.

So, $700 is now a sunk cost which couldn’t be brought back.