1 Answer | Add Yours
Such a motel might (and should) shut down in the long run because of the opportunity cost of keeping it open.
The opportunity cost of running the motel is the value of the use that could be made of the motel (and the land it is on) if it were not in use as a motel. As the value of the surrounding land goes up, the opportunity cost of the motel goes up because the land it is on could be sold for a large sum. The amount of money the motel makes comes to be less than the amount that the land it is on could be sold for. Therefore, the opportunity cost of running the motel is too high and the motel should shut down so the land can be sold.
We’ve answered 317,385 questions. We can answer yours, too.Ask a question