66) Val Alvarado, an accountant, quit his $80,000-a-year job and bought an exist

Question

66) Val Alvarado, an accountant, quit his $80,000-a-year job and bought an existing laundry from its previous owner. The lease had fi ve years remaining and required a monthly payment of $4,000. Val’s explicit costs are $3,000 per month more than his revenue. Should Val continue operating his business?

a. If Val’s marginal revenue is greater than or equal to his marginal cost, then he should stay in business.
b. Val should continue to run the laundry until his lease runs out.
c. Val’s explicit cost exceeds his total revenue. He should shut down his laundry.
d. cannot be determined without knowing his revenue

Explanation / Answer

b) If he shuts down he will lose 4k a month (the lease) rather than the 3k a month he is currently losing so he should stay in business until the lease runs out.

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