A real estate development firm owns a fully leased forty-story office building. A tenant recently moved its offices out of two stories of the building, leaving the space temporarily vacant. If the real estate firm considers moving its own offices into this forty-story office building, what cost should it assign for the space? Is the cost of the vacant space zero because the firm paid for the building long ago, a cost that is sunk, or is there an incremental opportunity cost?
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