Answer to Question #64926 in Microeconomics for muhammad dain

Question

Suppose that a real estate developer buys a parcel of land for 3 million dollars. He intends to build 40 houses on this lot. The townspeople wish to preserve the land as open space and offer the developer 3.75 million for the land. Explain how the developer would use the concept of opportunity cost when deciding whether to accept the town’s offer.

Answer 1

The developer has to decide on the sale of land the city based on the concept of cost opportunities. Indeed, based on this concept developer will profit in the amount of 0.75 million at the moment, if he sells the land. But if he still decides to build a house, we can not say with certainty that he will profit. And that is the concept of cost opportunities to build homes developer will cost 0.75 million.