Question

urse Home Content Grades Communication.. Assessments, Tools v uiz 2: Choice in a World of carcity hoice in a World of Scarcity Progress You are on question 1 of 10 Choose the BEST answer A profit-maximizing decision must be made about whether to keep a bed & breakfast operating. Until the place sells, the mortgage of $3000/month must be paid, since it is a sunk cost. If the restaurant operates, costs rise by $4000 per month, but revenue will be only $6000 per month. Until the building can be sold. it is best to ignore sunk costs and keep the bed & breakfast operating it is best to shut down the bed & breakfast since it is taking a loss it is best to keep the bed & breakfast operating because it is proitable <Previous Next >

Answer 1

Answer is It is best to Ignore sunk cost and keep the bed & breakfast operating
Explanation:
The Revenues per month:			6000
Less: Operating cost			4000
Operating income			2000
However, the restaurant is incurring the sunk cost of $ 3000 per month
Operating the restaurant still contributes towards the sunk cost.
Net loss be $ 1000 (3000-2000) per month
Note: Here, Total mortgage of $ 3000 per month has been referred as sunk cost
and nothing has been mentioned regarding Interest amount in the payment.
Therefore, total payment is taken as expenses
If the restaurant has been shut down, then the total sunk cost of $ 3000 per month has to be borne by the business itself.