Final answer:
In situations where revenues exceed variable costs, like the $20,000 to $15,000 scenario, a business should continue operating as it has a positive contribution margin. Conversely, when revenues are lower than variable costs, such as the $10,000 to $15,000 scenario, the business should shutdown to avoid losses.
Step-by-step explanation:
When assessing whether a business should continue operating, comparing the revenues with the variable costs is essential. In the case where the business earns $20,000 in revenues and incurs $15,000 in variable costs, the company is generating a positive contribution margin; hence, it is typically advisable for the center to continue in business. This surplus can contribute to covering any fixed costs and potentially lead to a profit.
However, if the scenario changes and the center earns $10,000 in revenues while still facing $15,000 in variable costs, the operation is not covering its variable expenses, leading to a negative contribution margin. Under these circumstances, unless there are strategic or long-term reasons to operate at a loss, the center should consider shutting down to prevent further financial losses.