If a firm buys a building so as to have office space for its workers,the monthly opportunity cost of the building is best measured as
A) the monthly mortgage payment the firm must pay.
B) the price the firm paid divided by twelve.
C) zero.
D) the rent the firm could earn if it rented the building to another firm.

Question

Quizplus · Accepted Answer

The monthly opportunity cost of the building is the rent that the firm could earn by renting the building to another firm. This is because the firm is forgoing the opportunity to earn rent by using the building for its own purposes. The monthly mortgage payment is a cost that the firm has to incur regardless of whether it uses the building or not, so it is not a measure of opportunity cost. The price the firm paid divided by twelve is the monthly depreciation expense, which is not a measure of opportunity cost either. The opportunity cost is not zero because the firm could have earned rent by leasing out the building to another firm.

If a Firm Buys a Building So as to Have