The World of Videos operates a retail store that rents movie videos. For each of

Question

The World of Videos operates a retail store that rents movie videos. For each of the last 10 years, World of Videos has consistently earned profits exceeding $30,000 per year. The store is located on prime real estate in a college town. World of Videos pays $2,200 per month in rent for its building, but it uses only 50 percent of the square footage rented for video rental purposes. The other portion of rented space is essentially vacant. Noticing that World of Videos only occupies a portion of the building, a real estate agent told the owner of World of Videos that she could add $1,350 per month to her firm

Explanation / Answer

the opportunity cost of a choice is the value of the best alternative forgone, in a situation in which a choice needs to be made between several mutually exclusive alternatives given limited resources. Assuming the best choice is made, it is the "cost" incurred by not enjoying the benefit that would be had by taking the second best choice available.

opportunity Cost = Cost of Selected Alternative - Cost of Next Best Alternative

2200-850=1350

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