Mr. Johnson would like to open a new business for which he needs a license from

Question

Mr. Johnson would like to open a new business for which he needs a license from the city of Atlanta for $25,000. The license is refundable, but only $5,000 is refundable in the event that the firm does not use the license within 3 days. What is the firm's fixed cost? What are the firm's sunk cost? Suppose Mr. Johnson obtains the license but does not use it. Two days after signing the lease, Mr. James, another business tycoon offers Mr. Johnson $4,000 for the license. Should Mr. Johnson accept the offer Why

Explanation / Answer

a) Fixed cost here is $25000

b) Considering that firm does not use license in first 3 days then the sunk cost is 25000-5000 = $20,000

c) No he should not consider the offer as he may return the license for $5000 while mr. James is offering only $4000

Related Questions

Navigate

• Browse (All)
• Browse M
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.