DQ #8 Week 5 Ch 5 (Due by.. 100 points maximum score E Grading Rubric Tap for mo
ID: 1139623 • Letter: D
Question
DQ #8 Week 5 Ch 5 (Due by.. 100 points maximum score E Grading Rubric Tap for more detail An apparel company manufacturing women only clothing also offers an in-store fitnesss studio, a café and a climbing wall. The store earns profit in excess of $500k /yr. It is located on prime real estate. The storeowner pays $15k /month in rent for the building. A real estate agent offering $8k per month for renting the fitness studio approaches the company. What is the opportunity cost of keeping the fitness studio within the store?Explanation / Answer
The opportunity cost is the sacrifice for the next best alternative. Since the store profit (Let us call it A) is the first alternative the company has opted, the rent (option B) which it is forgoing from the real estate agent is its opportunity cost.
Calculation:
1. Profit from option A
Total profit = 500k/year- (15k*12)= 320,000
2. profit Form option B= 8000*12=96,000
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