Why might a profitable motel shut down in the long run if the land on which it is located becomes extremely valuable due to surrounding economic development?

 

A profitable motel may shut down in the long run if the land on which it is located becomes extremely valuable due to surrounding economic development for several reasons. First, a motel must evaluate the type of economic development occurring in their area. If the motel is older and there is a newer motel with better quality facilities and rooms, the motel could lose a significant amount of money to their competitor because the demand for the service would not be as high. According to the textbook, “As new firms enter, the supply curve shifts to the right, price falls, and profits fall” (Rittenberg & Tregarthen, 2012, p. 240). There are often times when businesses will be bought out to make room for new economic development. In this case, if there was an option for the motel to be sold and it would make the owner more money than if they remained open, it may be a wise decision for them to sell their business.