Managerial Decisions in competitive markets
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The MidNight Hour, a local night club, earned $100,000 in accounting profit last year. This year the owner, who had invested $1 million in the club, decided to close the club. What can you say about economic profit ( and the rate of return) in the nightclub business?
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Solution Summary
Managerial decisions in competitive markets are considered.
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Economic profit or loss is based on opportunity cost principal
The opportunity cost or alternative costs are the returns from the second best use of the organization's resources or here in this case the individual's capability.
For example a farmer who is producing wheat can also produce rice with the same factors.
In Economics, The opportunity cost of anything is the next best alternatives that could be produced instead by the same factors, costing ...
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