This is a classic question regarding an opportunity cost. We answered similar questions recently (see the links below).
An "opportunity cost" is an economic term that means "the cost of something in terms of an opportunity forgone (and the benefits which could be received from that opportunity)", or "the most valuable forgone alternative (or highest-valued option forgone)", or the second-best alternative.
The theory was exemplified first by Frederic Bastiat, in his famous parable about a shopkeeper in the 1850's, whose window is broken by a little boy. Briefly, at first, everyone sympathized with the shopkeeper, whose window was broken and who had to spend money to repair the wondow. But soon, townsfolk began to realize that the broken window made work for the glazier, who then bought bread, benefiting the baker, who then bought shoes, benefiting the cobbler, etc. Finally, the onlookers concluded that the little boy was not guilty of vandalism; instead he was a HERO -- a public benefactor, creating economic benefits for everyone!
But, of course, this is a false conclusion, because it ignores the "opportunity cost". Because the shopkeeper had to purchase a new window, the shopkeeper could not buy a dress for his wife, so the seamstress suffered and could not buy bread for her table, so the baker suffered, etc.
At the most basic level, therefore, the opportunity cost is the the "hidden cost" of the "lost opportunity", and it is intimately related to the "law of unintended consequences".
In this case, the opportunity cost of opening a Papa Gino's includes the "lost opportunity" of using the start-up funds and start-up work for other investments or business purposes.
Note: there are three surprisingly good articles at Wikipedia concerning "Opportunity Cost", "Frederic Bastiat", and even the "Parable of the Broken Window". See the cites, below.
Great question. Hope this helps.What could be the opportunity cost of opening a Papa Gino's?
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opportunity cost
Definition
The cost of passing up the next best choice when making a decision. For example, if an asset such as capital is used for one purpose, the opportunity cost is the value of the next best purpose the asset could have been used for. Opportunity cost analysis is an important part of a company's decision-making processes, but is not treated as an actual cost in any financial statement..
so, maybe looking into their other business, such as D'Angelos sandwiches?
http://www.dangelos.com/franchise/
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