economiccs
NAME – Hassan Usman Zia
SUBJECT – Introduction to Economics
COURSE CODE - PEC.2013
SUBJECT LECTURER – Ms Naathiya Mohan
INSTITUTE – Institute Technology Pertama
QUESTION – 1
(A)
In the current situation we are planning a 250-km trip to Thailand but you are indifferent whether we should take a bus or drive. When you are informed about the typical cost of travelling a 10,000 km driving by Hertz that are as follows:
Insurance – RM 1000
Interest – RM 2000
Fuel and Oil – RM 1000
Maintenance – RM 1000
Sunk costs are costs that cannot be avoided, regardless of what is done in the future because they already have been incurred. They cannot be ignored neither be avoided in the future for instance Insurance and Interest.
In this situation when Hertz gives us an estimate we ignore the two terms of Interest and Interest as costing up to RM 3000, we ignore the two terms as they can be referred as SUNK COSTS.
After ignoring the two costs of Interest and Insurance we look at the rest of the terms which are about Fuel and Maintenance costing up a total of RM 2000.
According to the calculations involved, it is far better and economical to choose the car. The answer can be processed by the calculations involved and that are:
RM 2000 / 10,000 km x 250 km
2000/10000 x 250
= 50
=RM 50.
Now according to the calculations it takes RM 50 in total to travel from a car rather than spending RM 100 for the bus fare to Thailand. From this point we asses that taking a bus for the trip is our Opportunity Cost, that we choose what is best and give up the alternative choice for the decision taken.
(B)
According to part B in the following question, if we include the hassle and stress of driving and an average one traffic ticket for RM 20 and RM 28 respectively for every 200 miles we drive our decision will still be the same and we will definitely give up the choice for
SUBJECT – Introduction to Economics
COURSE CODE - PEC.2013
SUBJECT LECTURER – Ms Naathiya Mohan
INSTITUTE – Institute Technology Pertama
QUESTION – 1
(A)
In the current situation we are planning a 250-km trip to Thailand but you are indifferent whether we should take a bus or drive. When you are informed about the typical cost of travelling a 10,000 km driving by Hertz that are as follows:
Insurance – RM 1000
Interest – RM 2000
Fuel and Oil – RM 1000
Maintenance – RM 1000
Sunk costs are costs that cannot be avoided, regardless of what is done in the future because they already have been incurred. They cannot be ignored neither be avoided in the future for instance Insurance and Interest.
In this situation when Hertz gives us an estimate we ignore the two terms of Interest and Interest as costing up to RM 3000, we ignore the two terms as they can be referred as SUNK COSTS.
After ignoring the two costs of Interest and Insurance we look at the rest of the terms which are about Fuel and Maintenance costing up a total of RM 2000.
According to the calculations involved, it is far better and economical to choose the car. The answer can be processed by the calculations involved and that are:
RM 2000 / 10,000 km x 250 km
2000/10000 x 250
= 50
=RM 50.
Now according to the calculations it takes RM 50 in total to travel from a car rather than spending RM 100 for the bus fare to Thailand. From this point we asses that taking a bus for the trip is our Opportunity Cost, that we choose what is best and give up the alternative choice for the decision taken.
(B)
According to part B in the following question, if we include the hassle and stress of driving and an average one traffic ticket for RM 20 and RM 28 respectively for every 200 miles we drive our decision will still be the same and we will definitely give up the choice for