Suppose the fixed cost of Christmas trees business is $7,000 and sunk.The variable cost for each tree is $20.According to the forecast,the market price for Christmas trees is $25 each and the owner could sell 1000 trees at most each year.The owner

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The owner should keep operating because the revenue from selling 1000 trees would be $25,000 (1000 trees x $25), while the total cost would be $27,000 ($7,000 fixed cost + $20 variable cost per tree x 1000 trees). Even though the business is not making a profit, it is still covering its variable costs and generating some revenue. Shutting down the business would result in a complete loss of the fixed cost, and selling less than 1000 trees would result in a lower revenue and potentially not covering the variable costs.

Suppose the Fixed Cost of Christmas Trees Business Is $7,000