=a. Ted is trying to convince Katherine not to produce any velvet shirts since the demand for this fashion fad is quite low.

He argues that this fashion fad alone accounts for $500,000 of the fixed design and other costs. The net contribution

(price of clothing item materials cost labor cost) from selling the fashion fad should cover these fixed costs. Each velvet shirt generates a net contribution of $22. He argues that given the net contribution, even satisfying the maximum demand will not yield a profit. What do you think of Ted’s argument?