At the beginning of the year, the computer games retailer PlayUnlimited bought large stocks of a recently published game.

On December 31, the store manager recognizes that these did not sell well and is now considering two alternatives on how to deal with the remaining stock, which has a purchase price of €1,800.

He believes that he will be able to sell his stock by the end of next year if he lowers prices, and estimates to achieve sales revenue of

€1,150. Alternatively, he could return the remaining stock to the publisher and immediately receive €1,000 and, in turn, invest that amount at an interest rate of 2.5 per cent at his local bank.

a. Use this example to explain the concept of opportunity costs.

What are PlayUnlimited's opportunity costs if the store manager decides to return the products to the publisher?

b. How will sunk costs affect the decision of the store manager?