Answer to Question #152486 in Microeconomics for kris

Question

Goh runs a Fitness Center, which has signed a contract to rent space that costs
RM3, 500 per month. If Goh decides to operate, the cost of hiring fitness trainers is
RM6, 000 for the month. If Goh wants to shut down, he still has to pay the rent,
but does not have to hire labour. Now, consider THREE (3) possible scenarios.
In the first scenario:
Fitness Center does not have any members, and therefore does not make any
revenues, in which case it faces losses of RM3, 500 equal to the fixed costs.
In the second scenario:
Fitness Center has members that earn the center revenues of RM6, 000 for the
month, but eventually experiences losses of RM6, 000 due to hire fitness trainers to
cover the classes.
In the third scenario:
Fitness Center earns revenues of RM9, 000 for the month, but experiences losses of
RM500.
Based on the given scenarios, is that Goh should shut down his Fitness Center
immediately or later or continue?

Answer 1

For the first scenario

The loss is 3500 which is the fixed costs.In this scenario,the gym cannot continue opertaing because of the continuous losses.

Second scenario

Revenue is 6000

Loss is 6000 meaning that the gym is not making any profits or loses.

Third scenario

Revenue is 9000 loss is 500

I think gosh should continue opertaing with the third scenario because the revenue is more than the loss which means that the net revenue is a 6000-500=5500