Economics 201 Help?

Suppose a fishing equipment retailer buys 30 new lobster traps that have the special feature
that they collapse and are therefore easy to store on dock. Suppose he pays $2 000 for the
traps, but after one month he has sold no traps, and suspects it is because of a news release
that the traps are also collapsing under water and releasing the lobsters! The only good news
is that a local school has offered to buy the lot for $2100 for holding class supplies. The retailer
has checked out the scrap yard and discovered that the traps are worth $560 as junk metal. In
order to make his decision the retailer calculates his costs.
Wholesale costs $2 000
Interest charges 20
Handling and Advertising 230
Display Space 110
Total Cost $2 360
Since it is bad business to sell below cost, our retailer decides to turn down the offer from the
school. Did he make the right decision?

No. Once he has spent money buying the traps, the costs become sunk costs. Sunk costs should be disregarded when making an economic decision.

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