Why might a profitable motel shut down in the long run if the land on which it is located becomes extremely valuable due to surrounding economic developments?

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

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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.

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