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

You must always consider any opportunity costs when you chooseto make a decision or not. Theres really no other way to say thatwithout giving you the answer. Because all the other buildings in her area rent for anaverage of 4000, she could make around 4000 if she choseto rent out her space to move to the suburbs. She doesn't seem tosee this and thinks her bills will just go up $3000, shes missingthe opportunity that she can rent out her space for $4000

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