Question

Suppose you purchased a non-refundable plane ticket but, at the last minute, you have to cancel. You have the option to sell the ticket. If you initially paid $700 for the ticket, overnighting the ticket to someone through the mail would be $20, and you pay someone $10 to take the ticket to the post office to be mailed. What is the minimum price you should accept to purchase your ticket? (Hint: think about sunk cost)

- 730

- 670

- 30

- 700

Answer 1

The minimum price you should accept to purchase your ticket will be 30.

As you purchased a non-refundable plane and you cancelled the plan to go, if you are not going the complete 700 will be a loss. This non recoverable amount is called as sunk cost. Anyhow you cannot recover it.

You have an option to sell it. To sell it you need to mail it. For mail the charge is 20 and you pay someone $10 to take the ticket to the post office to be mailed. So total expenditure is 30 (20+10). This amount is recoverable and can be asked to the person who purchased the ticket. So the minimum price you should accept to purchase your ticket is 30.

The ticket price of 700 is called as suck cost. A sunk cost is a cost that has already been incurred and cannot be recovered.