You are the manager of a medium-sized farm with 100 acres of workable land. You can farm the land yourself, rent the land using a triple net lease to another farmer for $2,000 per acre, or sell the land to a developer for $40,000 per acre. You have an investment opportunity that pays a return of 6 percent a year. What is your opportunity cost for a year if you decide to farm the land yourself?
Opportunity cost is defined as the profit , that could have been possible , from the second next best use of the resource .
So three uses
1) farm land
2) rent to another farmer
Total income = 2000*100
Return from investment = .06*200,000
3) sell the land
Total income = 40,000*100
As return possible from investment= 6%
Total income from investment in a year = .06*4000,000
so income forgiven per year, if it is decided to farm the land
= Second best use of resource
= $ 240,000 : opportunity cost
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