Suppose You Value Watching a Movie at $5

question 142

Multiple Choice

Suppose you value watching a movie at $5. You rent it from your local movie rental store for $3.50 for one night. You do not get a chance to watch it, so you decide to keep it an extra day and pay a late fee of $2. Your decision is

• A) incorrect; you paid $5.50 to watch a movie you valued at only $5. You should have taken the movie back.
• B) incorrect; you should have returned the movie and rented it later.
• C) correct; the $3.50 paid for the first night is a sunk cost and is not relevant in your decision to keep it an additional night.
• D) correct; you value watching the movie at $5 per night, so keeping it an extra day increases your value of the movie to $10.

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Definitions:

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