Suppose you have an empty garage that costs you roughly 50 p

Suppose you have an empty garage that costs you roughly $50 per month to maintain in fees related to taxes and insurance. A neighbor asks if it were possible for you to rent the garage to them for $75 per month. If you decide to not rent the garage, but rather just leave it empty what is the total cost of the garage to you? Suppose you rent the garage to the neighbor what is your net profit?  

Solution

Looking at the accounting costs, the only cost is the cost of maintenance which is $50 per month. Now looking at the economic costs that includes the opportunity cost as well, these are in total $125 per month, one that is explicit at $50 per month, and the other which is implict as the cost of an opportunity missed which is $75 per month, in total a cost of $125 per month.

If rented, the net profit will be $75 - $50 = $25.