You are about to open a business and must obtain a license from the city for $25,000. The license is transferable, but only $4,000 is refundable in the event the firm does not use the license.
a. What are your fixed costs? What are your sunk costs?
b. Suppose the manager obtains a license but then decides against opening the business. If another firm offers the manager $3,000 for the license, should the manager accept the offer?
Answer:
1) fixed cost will be=25000
What are your sunk costs=25000-4000=21000 because only 4000 can be recovered
2) No, the manager should not accept the offer because the offer price is less than the recoverable value of 4000.
the above is answer..
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