Answer to Question #63818 in Macroeconomics for Saifa Sodhi

Question

A private college adds a small café to its building to cater to the needs of its
own students. The total cost of the facilities for the café is $100,000. After a
year of operations the college determines that operating the café is interfering with its primary business of educating students. A group of enterprising business students offer to purchase the café facilities for $50,000. The college balks at the idea because it had paid $100,000 for the facilities. The college spends $10,000 advertising the café for sale hoping to get an outside buyer willing to pay much more than the students and operate the café on campus. When no outside offer was forthcoming the students increased their offer to $55,000. Should the college take the students’ offer? Why or why not. (10 marks)

Answer 1

I think, a private college should sell this café for group of students. Firstly the college could not sell the café for price of 50000$. It is a really small price for this café. But when the cafe spends $10,000 advertising, then it became clear that this cafe is uninteresting and not cost-effective for other buyers at this moment. And in a few years price of this café will decrease, that`s why the college should sell this café now.