Suppose a Builder Constructs a House That He Hopes to Sell

Multiple Choice

Suppose a builder constructs a house that he hopes to sell to a prospective future buyer before he finishes building it.After spending six months and $300,000 in acquiring the land and constructing the house,market conditions change and the builder fails to find a buyer willing to pay his asking price of $360,000.The builder further realizes that by investing $300,000 in a bank deposit he would have been able to earn $4,500 as interest.Which of the following is the economically efficient way for the builder to view his investment?

A) The $300,000 is a sunk cost and should be ignored when negotiating a price for the home.
B) The $300,000 is the builder's opportunity cost and he should not accept any offer below that.
C) He should advertise more heavily in an attempt to sell the home for at least $300,000.
D) He should raise the price even further to better reflect the additional opportunity costs of his time and capital expenditures.