You and your friend Joe have identical tastes. At 2 p.m., you go to the local Ti

Question

You and your friend Joe have identical tastes. At 2 p.m., you go to the local Ticket master outlet and buy a $30 ticket to a basketball game to be played that night in Syracuse, 50 miles north of your home in Ithaca. Joe plans to attend the same game, but because he cannot get to the Ticketmaster outlet, he plans to buy his ticket at the game. Tickets sold at the game cost only $25 because they carry no Ticketmaster surcharge. (Many people nonetheless pay the higher price at Ticketmaster, to be sure of getting good seats.) At 4 p.m., an unexpected snow- storm begins, making the prospect of the drive to Syracuse much less attractive than before (but assuring the availability of good seats). If both you and Joe are rational, is one of you more likely to attend the game than the other?

Explanation / Answer

a.)You buy the ticket from Ticketmaster outlet, so $30 is sunk cost. You have already paid this price and cannot recover. You should not consider this as your cost of not going to the game. - In deciding whether to see the game, you should compare the benefit to see the game with the additional cost to attend this game. - That is, the opportunity cost of your time and whatever cost you assign to driving through the snowstorm. b.)-The opportunity cost to attend the game is, -The opportunity cost of Joe’s time and whatever cost Joe assigns to driving through the snowstorm PLUS the ticket price. Since, he buys the ticket at door and he needs to spend $25 if he attends the game. - Therefore, the costs to Joe to attend the game is $25 higher than your cost to attend the game. - the benefit to attend the games are the same for the two. Thus, Joe is more likely not to attend the game. - Note: You may think the cost of seeing the game is higher for you since your ticket costs is $30 and only $25 for Joe. However, when deciding whether to make the drive, the $25 is a relevant cost for Joe, whereas your $30 is a sunk cost

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