An American company is interested in building a new food processing plant in Winnipeg. The company's projected impact on the local economy is estimated to be $20 million. However, the company has stated that its investment is contingent on receiving a $1 million loan from the Government of Manitoba to help offset start-up costs. The Premier of Manitoba decides against lending the $1 million to the company. This decision forces the company to abandon the project.
a) What is the opportunity cost to the local economy of not lending the money to the company?
b) What is the opportunity cost to the Government of Manitoba of lending the money to the company?
c) If the expected tax revenue generated from the project were $5 million, then what would be the opportunity cost to the Government of Manitoba of not lending the money to the company?
In your answer, be sure to define the opportunity cost principle