Yes, he should take into account the implicit cost. There are opportunity costs that Michael has not taken into consideration. Before opening this shop, he must have been working somewhere. Or, if he were not running this shop for sweaters for dogs, he would have done something else. His salary that he used to get or he would have got is the opportunity cost.
Secondly, the money he has invested in his business must have come from his saving (partly at least). The interest he was earning on that saving deposit is the opportunity cost he must consider.
If he considers these 2 opportunity costs, and incurs loss (most probably he does), then he must shut down and do something more profitable -- where his revenue is more or where his opportunity cost is lower.
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