Question

The First Church has been asked to operate a homeless shelter in part of the church. To operate a homeless shelter the church must hire a full time employee for $1,200/month to manage the shelter. In addition, the church would have to purchase $400 of supplies/month for the people using the shelter. The space that would be used by the shelter is rented for wedding parties. The church averages about 5 wedding parties a month that pay rent of $200 per party. Utilities are normally $1,000 per month. With the homeless shelter, the utilities will increase to $1,300 per month. What is the opportunity cost to the church of operating a homeless shelter in the church?

Answer 1

The opportunity cost for the First Church to operate a homeless shelter is $2,900 per month, which includes lost rental income, increased utility costs, and new expenses for an employee and supplies.

Step-by-step explanation:

The opportunity cost to the First Church of operating a homeless shelter is the total of lost rental income from wedding parties, additional utility costs, and the new expenses for the employee and supplies. The church earns $200 per party from 5 wedding parties a month, which results in $200 x 5 = $1000 per month in rental income. Since they will give up this income to operate the shelter, this is part of the opportunity cost.

Next, we consider the increase in utility costs from $1,000 to $1,300 per month. This increased cost of $300 is also a part of the opportunity cost. Additionally, the church would have new expenses totaling $1,200 (employee) + $400 (supplies) per month.

Adding these figures together, the total opportunity cost for the church is:

Lost rental income: $1,000

Increase in utility costs: $300

Employee salary: $1,200

Supplies: $400

So, the total opportunity cost = $1,000 + $300 + $1,200 + $400 = $2,900 per month.

Answer 2

Answer: $1,000

Step-by-step explanation:

Opportunity cost is the benefit that is foregone for an individual by choosing one alternative over other alternatives available to him.

If the opportunity cost is lower for an individual then this will benefit him whereas if the opportunity cost is higher then this will not benefit the individuals.

Therefore, the opportunity cost for operating a homeless shelter is the amount that is received by renting the space of shelter for wedding parties.

Opportunity cost = Average wedding parties per month × Rent per party

= 5 × $200

= $1,000