question archive A Nike women's-only store in California offers women's running, training, and sportswear products and also contains an in-store fitness studio for group and personal fitness training sessions
A Nike women's-only store in California offers women's running, training, and sportswear products and also contains an in-store fitness studio for group and personal fitness training sessions
Subject:EconomicsPrice:2.87 Bought7
A Nike women's-only store in California offers women's running, training, and sportswear products and also contains an in-store fitness studio for group and personal fitness training sessions. The store consistently earns profits in excess of $545,000 per year and is located on prime real estate in the center of town. The store owner pays $18,000 per month in rent for the building. A real estate agent approached the owner and informed her that she could add $8,000 per month to her firm's profits by renting out the portion of her store that she uses as a fitness studio. While the prospect of acquiring this rental income was enticing, the owner believed the use of that space as a fitness studio was an important contributor to her store's profits.
What is the opportunity cost of continuing to operate the fitness studio within the store?
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Answer:
The opportunity cost of continuing to operate the fitness studio within the store will be the $8000 per month which was offered to the store owner by the real estate agent. The store owner could have foregone the space of fitness studiofor $8000 per month or $96000 per annum. If the store owner continues with the fitness studio he will forego $8000. So the opportunity cost for continung with fitness studio is $8000 per month or 12*8000 = $96000 per annum
