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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...
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 $2,400 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 $1,500 per month to her firm’s profits by renting out the unused portion of the store. While the prospect of adding an additional $1,500 to World of Videos’s bottom line was enticing, the owner was also contemplating using the additional space to rent video games. What is the opportunity cost of using the unused portion of the building for video game rentals?
Opportunity cost is the cost of foregone alternative. It is the loss of potential gainfrom other alternatives when one alternative is chosen.The world of videos pays rent of $2,400 per month and...