Jill Johnson operates her copy business in a building she owns in the center of

Question

Jill Johnson operates her copy business in a building she owns in the center of the city. Similar buildings in the neighborhood rent for $4,000 per month. Jill is considering selling her building and renting space in the suburbs for $3,000 per month. Jill decides not to make the move. She reasons, "I would like to have a store in the suburbs, but I pay no rent for my store now and I don't want to see my costs rise by $3,000 per month." What error is Jill making? She is not considering her variable costs. She is not taking into account the $3,000 to rent in the suburbs. She is not considering her fixed costs. Because she can rent out her building for $4,000 per month, she is ignoring the opportunity cost of using the building itself.

Explanation / Answer

Hmh, it's hard to see how to help on this one without justgiving it away.... . What do you think the answer is? Can you rule out any ofthe options? Are there any terms you're not comfortablewith?

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