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23 March, 16:43

Suppose two cities are considering tearing down their stadiums to build new ones. In one city, the old stadium cost $5 million to build, while in the other city, the old stadium cost $50 million to build. If all else is equal, what can we say about how the costs of the old stadiums should affect the cities' decisions?

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  1. 23 March, 17:30
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    The Cost to build the old stadium shouldn't be considered - The cities shouldn't consider the cost to build the old stadium, which is a sunk cost. They should be examining whether the benefits of tearing down the old stadium and putting up a new stadium outweigh the costs of that decision.
  2. 23 March, 20:27
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    These are the options for the question:

    A. They should be more willing to tear down the $5 million stadium, because it cost less to build.

    B. They should be more willing to tear down the $50 million stadium, because it cost more to build.

    C. The cost to build the old stadium shouldn't be considered.

    And this is the correct answer:

    A. They should be more willing to tear down the $5 million stadium, because it cost less to build.

    Explanation:

    City A will likely be more willing to tear down its old stadium because it costed $5 million to build. City B, on the other hand, will have to think twice because a stadium that costed $50 billion to build could have more value than it seems, or the City could simply not have enough money to build a better new stadium (something that would probably cost more than $50 billion to do).
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