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Chapter 9: Problem 4

You have bought a \(\$ 10\) ticket in advance for the college soccer game, a ticket that cannot be resold. You know that going to the soccer game will give you a benefit equal to \(\$ 20\). After you have bought the ticket, you hear that there will be a professional baseball post-season game at the same time. Tickets to the baseball game cost \(\$ 20\), and you know that going to the baseball game will give you a benefit equal to \(\$ 35\). You tell your friends the following: "If I had known about the baseball game before buying the ticket to the soccer game, I would have gone to the baseball game instead. But now that I already have the ticket to the soccer game, it's better for me to just go to the soccer game." Are you making the correct decision? Justify your answer by calculating the benefits and costs of your decision.

Short Answer

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Explain briefly.

Step by step solution

01

Calculate the net benefit of going to the soccer game

The cost of the soccer ticket is already spent, and it cannot be resold so it's a sunk cost. The benefit of going to the soccer game is \(20, so the net benefit of going to the soccer game is \)20 - \(10\)(sunk cost) = \(10\).
02

Calculate the net benefit of going to the baseball game

The cost of the baseball ticket is \(20 and the benefit of going to the baseball game is \)35. So, the net benefit of going to the baseball game is \(35 - \)20 = \(15\).
03

Compare the net benefits and make the decision

The net benefit of going to the soccer game is \(10\), while the net benefit of going to the baseball game is \(15\). Thus, the option of going to the baseball game has a higher net benefit. So, the decision to go to the soccer game just because the ticket has already been purchased is incorrect. The better decision would be to go to the baseball game in this situation.

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