Hi I need the Answers to this question please Part II: The eccentric billionaire Zaggy Zargawhoop must decide today whether to repair hisyacht again. Last week, Zaggy paid $9 million to the repair shop to fix his yacht. But Zaggylearned today that the yacht requires $12 million in additional repairs and upgrades. If Zaggycompletes the $12 million in repairs, using the yacht would be worth $18 million to Zaggy. IfZaggy does not complete the repairs, the yacht is worth zero. Use numbers in your answers.a. Should Zaggy decide to purchase the repairs to his yacht today? Explain briefly usingeconomic reasoning.b. If he knew last week what he knows now, would Zaggy have repaired his yacht last week?Explain.c. Identify the economic concept that describes the $9 million repair bill from last week. Explainyour answer.

Answered: Part II: The eccentric billionaire…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Hi I need the Answers to this question please

Part II: The eccentric billionaire Zaggy Zargawhoop must decide today whether to repair his
yacht again. Last week, Zaggy paid $9 million to the repair shop to fix his yacht. But Zaggy
learned today that the yacht requires $12 million in additional repairs and upgrades. If Zaggy
completes the $12 million in repairs, using the yacht would be worth $18 million to Zaggy. If
Zaggy does not complete the repairs, the yacht is worth zero. Use numbers in your answers.
a. Should Zaggy decide to purchase the repairs to his yacht today? Explain briefly using
economic reasoning.
b. If he knew last week what he knows now, would Zaggy have repaired his yacht last week?
Explain.
c. Identify the economic concept that describes the $9 million repair bill from last week. Explain
your answer.

Expert Solution

Step 1

a. Yes he should. Since Zaggy has already paid the $9B, which he will not be getting back, he looses $9B if he does not repair. Bit if he repairs, he loses $(12+9-18)B= $3B. So his loss is lower if he repairs.

b. No, he would not. In that case he would see that by repairing he loses $3B. He would rather let the yacht be worth nothing.

c. The concept is known as sunk cost. Refers to the cost that has been incurred and not possible to recover.

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