Question

Andrew has decided to open an online store that sells home and garden products. After searching around, he chooses the software company Initech to provide the software for his website since their product required the least amount of specialized investments for him to use it. They agreed upon price of $4,000. To use Initech’s software, Andrew makes $2,500 in sunk capital investments and spends 45 hours learning how to use Initech’s software, which is very different from other software packages. Both Andrew and Initech view Andrew’s time as worth $26 per hour and Initech is fully aware of the investments Andrew must make to use their product. After Andrew’s investments were made, Initech came to Andrew and asked for more money. What do you think is the new price Initech requested Andrew to pay?

Answer 1

Answer

Explanation :

Andrew's investment cost = agreed upon price + sunk capital investments + no of hours spend * Andrew's worth per hour

Andrew's investment cost = $4000 + $2500 + 45 * 26

Andrew's investment cost = $6500 + $1170

Andrew's investment cost = $7670

Agreed upon price = $4,000

extra money that Andrew to pay = Andrew's investment cost - Agreed upon price

= $7670 - $4000

= $3670

so the total money that Initech asked Andrew to pay is $7670 that is $3,670 more

Therefore, The new price is $7,670