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

make any revenues, in which case it faces losses of $10,000 equal to the fixed costs. In the second scenario, the
Yoga Center has clients that earn the center revenues of $10,000 for the month, but ultimately experiences

losses of $15,000 due to having to hire yoga instructors to cover the classes. In the third scenario, the Yoga

Center earns revenues of $20,000 for the month, but experiences losses of $5,000.

In all three cases, the Yoga Center loses money. In all three cases, when the rental contract expires in the long

run, assuming revenues do not improve, the firm should exit this business. In the short run, though, the

decision varies depending on the level of losses and whether the firm can cover its variable costs. In scenario 1,

the center does not have any revenues, so hiring yoga teachers would increase variable costs and losses, so it
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