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
Based on the given scenarios, is that Goh should shut down his Fitness Center
immediately or later or continue?
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