Questions: Taking a Hit Unfortunately, you didn't anticipate how bad the weather was going to be! During the second week of the month, it starts raining almost every day. Being a savvy business owner, you start to crunch the numbers to plan out the rest of the month. To generate more foot traffic, you decide to offer coupons and discounts. With the discounts and coupons, you think by the end of the month you'll have averaged a price of 6.00 per meal and that you'll only sell 400 total meals this month. At this quantity your profit before paying for the monthly license is only 400. After you pay for the mandatory license, you'll be losing 100 this month! What is your best strategy? Close for the rest of the month and move the truck to your driveway since you'll be losing money anyway. Finish out the month and sell 400 total meals.

To determine the best strategy, let's analyze the situation:

1. Current Situation:

   • You expect to sell 400 meals at an average price of $6.00 each.
   • Your profit before paying for the monthly license is $400.
   • After paying for the license, you will incur a loss of $100.

2. Options:

   • Close for the rest of the month: This would mean stopping operations immediately, which might save on variable costs associated with selling more meals, but you would still have to pay the fixed costs like the license fee.
   • Finish out the month and sell 400 total meals: This means continuing operations as planned, accepting the $100 loss.

3. Analysis:

   • Closing for the rest of the month: If you close, you might save on some variable costs (like ingredients, utilities, etc.), but you will still have to pay the fixed costs, including the license fee. This could potentially increase your loss if the variable costs saved are less than the revenue you would have earned from selling the remaining meals.
   • Finishing out the month: By continuing to sell meals, you are at least covering some of your costs, and the loss is limited to $100. Additionally, staying open maintains customer relationships and market presence, which could be beneficial in the long run.

4. Recommendation:

   • The best strategy is to finish out the month and sell 400 total meals. This minimizes the loss to $100 and maintains your business presence, which could be crucial for future sales and customer loyalty. Closing early might lead to a greater loss if the fixed costs are not offset by the savings on variable costs.

In summary, continuing operations and accepting the $100 loss is the more strategic choice, as it limits financial loss and preserves business continuity.