Final answer:
The decision for a Yoga Center to stay open longer or lay off an employee depends on its ability to cover variable costs and the potential for revenue.
Step-by-step explanation:
The question concerns the decision-making process of a business, specifically a Yoga Center, in scenarios where it is losing money. Depending on the scenario, the choice to stay open longer or to let go of an employee involves analyzing the impact of these decisions on the company's financial health.
In scenario 1, with no revenues, the Yoga Center should not hire additional staff as it would increase losses. It would be advisable to shut down and incur only fixed costs. In scenario 2, if the firm's losses are severe and it cannot cover increased variable costs, it should shut down to avoid further losses. However, in scenario 3, if the revenue is sufficient to reduce losses despite them being open, the firm should choose to remain open in the short term.
Understanding the balance between variable costs and the potential for revenue is crucial for short-term decision-making. During a recession, companies face additional complexities as demand wanes; however, laying off workers immediately might not be the best course of action if the downturn is temporary. Instead, firms may opt for overtime work with current employees until they are confident in the market's recovery.