Ontel Engineers Proposed Developing a 10-Gigahertz Microprocessor in Early 2011

question 164

Multiple Choice

Ontel engineers proposed developing a 10-Gigahertz microprocessor in early 2011 at a cost of $20 million for a working prototype.By mid-2012,the $20 million had been spent with no prototype.The engineers request an additional $10 million to finish the project.For convenience,assume the marginal cost of producing the chip once it is developed is zero.
-A senior executive at Ontel argues that the engineers should only be granted the additional $10 million if Ontel can collect $30 million in revenues after the chip is developed.The executive's argument is

• A) correct.
• B) incorrect;Ontel need only collect $20 million.
• C) incorrect;the $20 million already spent is a marginal cost and should be ignored.
• D) incorrect;the $20 million already spent is a sunk cost and should be ignored.
• E) possibly correct;insufficient information to say.

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Definitions:

Currency

Coins and paper money that serve as a medium of exchange.

Exports

Goods and services produced in a nation and sold to customers in other nations.

Imports

Goods and services bought by people in one country that are produced in other countries.

Balance

The term can refer to the difference between the sum of all credits and debits in an account, or equilibrium in supply and demand in a market.