Question

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 $437,000 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 $7,700 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?

Answer 1

Opportunity Cost:

Opportunity cost can be denied as the benefit a person has received but giving up taking another course of action. In other words, it can be defined as the next best alternative.

Given that the Nike women's store earns a profit in excess of $437,000. The owner of the store pays $18,000 per month as rent. A real estate agent approached the owner and informed her that she could add $7,700 per month to her firm's profits by renting out the portion of her store that she uses as a fitness studio.

From the given question the opportunity cost of continuing to operate the fitness studio within the store is $7,700.