(Solved):A profit-maximizing decision must be made about whether to keep a bed & breakfast operating….

 

Question

A profit-maximizing decision must be made about whether to keep a bed & breakfast operating. Until the place sells, the mortgage of $3,000/month must be paid, since it is a sunk cost. If the restaurant operates, costs rise by $4,000 per month, but revenue will be only $6,000 per month. Until the building can be sold:

a. it is best to ignore sunk costs and keep the bed & breakfast operating.

b.

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