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Warehouses and airports are giving a higher economic value as compared to farming in the case the opportunity cost is considered. Opportunity is a summation of the monetary value of the next available best alternative that one foregoes during the making of a decision. The monetary value of farming must be lower than the gains from warehouses and airports. The farm products’ total price minus the costs incurred to the point of sale which equals to the net profit is compared to the monetary gains from warehouses and airports whereby the warehouses could be rented o ceased and the airport authorities pay for the land in large amounts. This is why the residents use the land for warehouses and airports but not farming because they can use the revenue/profits from warehouses and airports to buy farm produce for a use other than do the farming themselves (Mankiw, 1998. Pp.56). The issue of comparative advantage also comes into play because both the farming and warehouses/airports generate income/profit but that of warehouses/airports is larger than that for farming. The opportunity cost of airport/warehouses is the amount that they could have gained from farming but they derived themselves. This advantage. The opportunity cost for farming is, therefore, lower than the opportunity cost for the warehouses/airports.
The cost of parking is the total revenue that could have been gained from subletting the parking space to a third party. In this case, you are denying yourself some revenue (if you did sublet). This revenue that you are denying yourself is the actual cost of the parking space. The opportunity cost is expressed in relative price and is the price revenue of one choice /alternative in comparison to the price/revenue of another.
The cost of parking is, therefore, the foregone expected revenue from the parking out letting. In this case, it doesn’t make sense to sublet the parking space provided by the company and then you pay someone else for parking in case you have to get a vehicle. But if you can get parking at cheaper rates then you would better sublet the parking provided by your company because they relive price/revenue advantage would be higher. If you did not have a vehicle then it would have been very economically necessary for you to sublet the parking instead of it being idle. This will enable you to gain from the parking space which has been provided by the company out of your position in the company. In this case, the opportunity cost will be zero because you don’t have another choice. Economically this space should not let free because if you not using it this can be translated into some monetary value which will be an incremental sum to your salary.
Scarcity of resources/monetary value effects deficits brings about tradeoffs, cases where you need to compare between using the parking space and subletting it. In this case, you must give up the revenue from subletting in case you decide to use the space yourself. Your decision has involved two choices and opportunity cost must b considered. This is not like in accounting where forgone opportunities, i.e. collecting revenue by subletting the parking may not be considered. Opportunity cost is normally represented in monetary values and is the assumed expected benefits/cost. In microeconomics, the cost benefits analysis is very important for any activity/operation. Economic institutions/entities go for the alternatives whereby the total revenue is higher than the total cost. You can’t consume what you have produced/you can’t have your cake and eat it too if you and in need of your output and other producers in the market are giving a lower quotation of the same. So you would better buy other similar products than use what you have.
You can’t have your cake and eat it too, is true because we are looking at the comparative price/advantage: if the revenue of the output you have are higher than the cost of acquiring other similar product/substitutes than you would see it out because by consuming it as part of your input will be denying yourself some revenues and this will be an opportunity cost to you (Kendrick, 2003.pp. 45-54).
- Rent as restaurant for $1200/MO. The next best choice is selling as a house warehouse for $1400/MD the extra cost incurred in this case is $1400-$1200=$200. $200 is the opportunity cost for your decision and is what you are denying yourself by taking hits action.
- Sell as a warehouse for $1400/MO. The next choice would be to sell as a warehouse for $1400/MO. The cost for your action would be $1400-$1400=0. So you have got no opportunity cost for this because this is the best option for your building and it is advisable to go for this.
- Rent as a bookstore for $700/MO. The next best choice is selling as a warehouse for $1400 so the cost for your action is $1400-$700=$700. This is what you deny yourself if you don’t sell s warehouse for $1400/MO but instead rent as a bookstore for $700/Mo comparative/relative advantage should guide you.
Reference
Kendrick, D.A. (2003). Models for Analyzing Comparative Advantage 45-54. Springer Publishers.
Mankiw N.G. (1998). Principles of Microeconomics 60-63. Dyden Press. ISBN 00300245028.
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