Stu owns an ice cream parlor that is usually closed during the winter. This winter, however, Stu is considering opening his business in February instead of March. If Stu opens his store in February, he will earn total revenue of $4,000 for the month, incurring variable costs of $3,500 and fixed costs of $1,500. If the store remains closed during February, Stu will earn no revenues and incur fixed costs of $1,500. Stu should:

Question

Quizplus · Accepted Answer

Opening in February generates a total revenue of $4,000 against variable costs of $3,500, resulting in a $500 operating profit. This profit helps offset the fixed costs of $1,500, which Stu incurs regardless of whether the store is open or closed. Therefore, opening reduces the net loss compared to staying closed.

Stu Owns an Ice Cream Parlor That Is Usually Closed