Fun Time Inc. uses the same property and equipment to provide skiing services for six months during the winter and mountain roller boarding for six months during the summer. Monthly revenue and cost figures during the summer and winter months for Fun Time are shown below. Fun Time's $1,000 monthly fixed costs will be incurred as long as it remains in business.
Which of the following should Fun Time do if it wants to maximize its annual profit?
A) operate in both the winter and summer
B) operate in the summer, but shut down during the winter
C) operate in the winter, but shut down during the summer
D) go out of business immediately

Question

Fun Time Inc. uses the same property and equipment to provide skiing services for six months during the winter and mountain roller boarding for six months during the summer. Monthly revenue and cost figures during the summer and winter months for Fun Time are shown below. Fun Time's $1,000 monthly fixed costs will be incurred as long as it remains in business.
 Which of the following should Fun Time do if it wants to maximize its annual profit?
A) operate in both the winter and summer 
B) operate in the summer, but shut down during the winter 
C) operate in the winter, but shut down during the summer 
D) go out of business immediately

Quizplus · Accepted Answer

Fun Time should operate in both the winter and summer to maximize its annual profit. As shown in the table, both skiing and mountain roller boarding bring in positive revenue and have variable costs that are less than the revenue generated. Therefore, operating in both seasons will bring in more revenue and profit than shutting down during one season or going out of business. By operating in both seasons, Fun Time can cover its $1,000 monthly fixed costs with revenue generated in either season while also earning a profit.