Find books solutions tutAssume that a friend offered you to

Find books, solutions, tutAssume that a friend offered you to purchase your car for 15% above the price listed on Kelley Blue Book website. Further assume that your friend has a good idea of the condition of your car, access to the Internet, and he/she is in his/her right mind. Assume further that the price offered is only 20% of what the car cost you over the years of ownership (initial price plus maintenance and repair expense). a) Should you sell the car? Briefly explain your answer. b) If you answered yes, is there wealth created from the transaction? If you answered “no”, is there wealth destroyed (as you are foregoing the opportunity of selling it at a higher price)? Briefly explain your answer using the concept of buyer surplus and seller surplus. Can you think of the reasons why your friend (the buyer) wants to purchase your car above the market price? c) What is the sunk cost in this example? Explain why it should not affect your decision. d) Would it be ethical on your part, should you agree on such a high price? ors and more...

Solution

a) I will sale the car because due to time value of car will decrease.

b)

c)Money already spent and permanently lost. Sunk costs are past opportunity costs that are partially (as salvage, if any) or totally irretrievable and, therefore, should be considered irrelevant to future decision making. This term is from the oil industry where the decision to abandon or operate an oil well is made on the basis of its expected cash flows and not on how much money was spent in drilling it. Also called embedded cost, prior year cost, stranded cost, or sunk capital.

d)No it is not ethical to sell car at higher price because being freind I should do a fair practice, but economically it is not good .