fixed costs of $10,000.

Scenario 2

The center earns revenues of $10,000, and variable costs are $15,000. The center should shut down now.

Scenario 3

The center earns revenues of $20,000, and variable costs are $15,000. The center should continue in business.

TABLE 8.5 Should the Yoga Center Shut Down Now or Later?

Figure 8.6 illustrates the lesson that remaining open requires the price to exceed the firm’s average variable

cost. When the firm is operating below the break-even point, where price equals average cost, it is operating at

a loss so it faces two options: continue to produce and lose money or shutdown. Which option is preferable?

The one that loses the least money is the best choice.

At a price of $2.00 per pack, as Figure 8.6 (a) illustrates, if the farm stays in operation it will produce at a level

of 65 packs of raspberries, and it will make losses of $47.45 (as explained earlier). The alternative would be to
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