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 $586,000 per year and is located on prime real estate in the center of town. The store owner pays $17,000 per month in rent for the building. A real estate agent approached the owner and informed her that she could add $6,900 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

Answer:

Opportunity cost = $6900 monthly or $82800 yearly.

Explanation:

Opportunity cost = $6900 monthly or $82800 yearly.

The opportunity cost is the gain forgone for the other alternative, or ultimately a loss to acquire other opportunity.

Here, the opportunity cost is gain of $6900 forgone to operate the fitness studio within the store by Nike.