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

should shut down and only incur its fixed costs. In scenario 2, the center’s losses are greater because it does

not make enough revenue to offset the increased variable costs, so it should shut down immediately and only

incur its fixed costs. If price is below the minimum average variable cost, the firm must shut down. In contrast,

in scenario 3 the revenue that the center can earn is high enough that the losses diminish when it remains

open, so the center should remain open in the short run.
198 8 • Perfect Competition

Scenario 1

If the center shuts down now, revenues are zero but it will not incur any variable costs and would only need to pay

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
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