Economic decisions of pizza shop

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When measuring costs, it is important to keep in mind of one of the Ten Principles of Economics: The cost of something is what you give up to get it. The opportunity cost of an item refers to all those things that must be forgone to acquire that item. When economists speak of a firm's cost of production, they include all the opportunity costs of making its output of goods and services.

Economists are interested in studying how firms make production and pricing decisions. Because these decisions are based on both explicit and implicit costs, economists include both when measuring a firm's costs.

If John operates a pizza restaurant in a shop he owns in New York. Similar shops nearby rent for $2000 per month. John is considering selling his shop and renting a similar shop in the countryside for $1000 per month. Eventually, he decides not to make the move. He reasons,I would like to have a restaurant in the countryside, but I pay no rent for my restaurant now, and I don't want to see my costs rise by $1000 per month. Is John's reasoning valid in an economic sense?

Reference no: EM1367822

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