My father owns his own appliance/electrical business (and the building where it is housed). Recently he undertook the task of remodeling the building that has had the same appearance for a number of years. In the front of his store he runs the appliance business (and in the back the electrical business). The remodel is only affecting the appliance business. He had originally planned to not sell appliances during the remodel, but he was approached by another business owner that wanted to have the option of selling the appliances in a furniture store that he had just opened. Profit would be split 50/50. If my father does not sell appliances during this time, his opportunity cost would be the profit he would earn by allowing this other business owner to sell appliances for him.
Another principle to learn from this situation is that of joint cost – Chapter 7. The furniture store owner needs appliances in his store, but the cost of purchasing the appliances from a major distributor could be quite costly. By combining his resource of space with my father’s resource of appliances, both come out ahead. The appliances and furniture store share joint costs. Even without the appliances, the cost of running the furniture store is present. The profit from my father’s appliances would help offset some of this cost.