Mike has spent 500 purchasing and repairing an old guitar wh

Mike has spent $500 purchasing and repairing an old guitar, which he expects to sell for $800 once the repairs are complete. Mike discovers that, in addition to the $500 he has already spent, he needs to make an additional repair, which will cost another $400, in order to make the guitar worth $800 to potential buyers. He can sell the guitar as it is now for $300. What should he do?

Solution

Total cost of repair to be sold at $800 = 500+400 = $900

Loss = 900-800 = $100.

Price on selling without additional repair will be = 300

Loss = 500-300 = $200

Loss if does not sell = $500.

Mike will try minimizing his loss and will spend additional $400 to repair and then sell it at $800.