down and not producing at all? The answer is that shutting down can reduce variable costs to zero, but in the

short run, the firm has already paid for fixed costs. As a result, if the firm produces a quantity of zero, it would

still make losses because it would still need to pay for its fixed costs. Therefore when a firm is experiencing

losses, it must face a question: should it continue producing or should it shut down?

As an example, consider the situation of the Yoga Center, which has signed a contract to rent space that costs

$10,000 per month. If the firm decides to operate, its marginal costs for hiring yoga teachers is $15,000 for the

month. If the firm shuts down, it must still pay the rent, but it would not need to hire labor. Table 8.5 shows

three possible scenarios. In the first scenario, the Yoga Center does not have any clients, and therefore does not
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