For their part, employers will concentrate on a certain product so long as they can obtain a reasonable profit from it, which requires them to consider two key aspects:
Let's say a couple decides to open a bar. At the end of the first year, they have obtained a revenue of €150,000, while the costs of serving patrons, hire of the premises, etc. amount to €120,000. We can see that the first condition is fulfilled because the revenue has far exceeded the costs; accountants would tell us that we have a profit, since the revenue covers costs.
However, imagine that, in order to open the bar, this couple gave up their jobs as paid workers, which had given them an annual income of €40,000. These alternative incomes are what economists call the opportunity cost of setting up the bar as a business. We can see that the second aspect is not covered in the example:
The business is not really making money because
Revenue – costs = 150,000 – 120,000 = 30,000
< Opportunity cost = 40,000
Of course, this couple may still prefer to run the bar than to work as employees, so we can consider their sacrifice in terms of the money left over at the end of the year reasonable if the satisfaction of running their own business compensates for this. Our point is, firstly, that they are not running a good business from a strictly monetary perspective, and secondly, that their decision will only seem reasonable if it is a lucid decision, that is, if they consciously accept this loss of revenue; it would not be reasonable if they did not accept that they would have less money.
To turn the bar into a good business, the profits must outweigh the "profit" from the alternative activity or opportunity cost.
If the annual revenue of the bar is €180,000, for example, then we would be talking about a good business:
This would be a good business because
Revenue – costs = 180,000 – 120,000 = 60,000
> Opportunity cost = 40,000
We can conclude that, in order to sustain a business, the profits obtained must exceed the opportunity costs of engaging in alternative activities.