Concord Company Opportunity Cost Analysis

What could the Concord Company have purchased instead of building a warehouse?

The Concord Company's decision to build a warehouse involves an opportunity cost and to evaluate if it was the best economic decision, additional information is needed.

Evaluating Opportunity Costs and Economic Profit

Opportunity Cost: The question posed is centered around an economic choice made by the Concord Company, where they have built a warehouse for $708,000. This decision is an example of an opportunity cost, as the company had other alternatives for the use of the funds. The choices included purchasing land, another warehouse, or equipment.

Additional Information: To determine what the best use of funds would have been, we would need additional information about the potential return on investment, cost of opportunities, and the strategic alignment of each option with the company's long-term goals.

Economic Profit Calculation: In the context of economics, when a firm owns land that it could rent out, the economic profit includes accounting for this potential rental income as an opportunity cost. Therefore, if the firm's factory is located on this land and the potential rent is $30,000 per year, this amount should be considered when calculating the firm's economic profit for the previous year. This reflects the concept that economic profit is calculated by taking into consideration both explicit and implicit costs.