There are multiple factors that might cause a profitable motel to shut down if the land on which it operates becomes significantly valuable due to surrounding economic development. First, the rise in the value of the land might raise taxes that are charged on the motel (Blair & Premus, 2017). The taxation costs may cut into the profits accrued by the motel. The motel management may not realize a good profit margin as when the land was not so valuable. The second reason could be caused by the emergence of other motels in the location offering similar or even better services. Competition may impact negatively on the revenue collected. The motel may not enjoy the monopoly as before.
Another very possible conclusion is the type of economic development being set up in the area. If it is industrialization, where the area is sprouting up with industries, the motel management may decide to evaluate the impact of the industries. The industries may cause health hazards arising from noise and air pollution. It may be concluded that the continued operation of the motel may cause problems in the future. Also, the noise and air pollution may affect the type of customers that are attracted to the motel.
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Lastly, the increased economic activity may push up the price of the land. It may then be seen that selling the motel and the land may be more beneficial then operating the motel (Tierney, 2015). The motel could be making a significant amount of money, but the sale of the land and making other types of investment may promise to be a better option. Therefore, it may be a factor of opportunity cost and the decision to shut down the motel may be unanimously agreed by the whole management team. The costs that may cause the motel to shut down are taxation costs, increased land rates and opportunity cost.
References
Blair, J. P., & Premus, R. (2017). Major factors in industrial location: A review. Economic Development Quarterly , 1 (1), 72-85.
Tierney, K. J. (2015). Businesses and disasters: vulnerability, impacts, and recovery. In Handbook of disaster research (pp. 275-296). Springer New York.
