Suppose Chris Is a Potter Who Makes Mugs If Chris's Fixed Costs Decrease, Then in the Short Run

question 100

Multiple Choice

Suppose Chris is a potter who makes mugs. His total costs depend on the number of mugs he makes each day, as shown in the table below. $$\begin{array} { | c | c | } \hline \begin{array} { c } \text { Number of } \\\text { Mugs Per Day }\end{array} & \begin{array} { c } \text { Total Cost } \\\text { Per Day }\end{array} \\\hline 0 & \$ 10 \\\hline 1 & \$ 14 \\\hline 2 & \$ 19 \\\hline 3 & \$ 25 \\\hline 4 & \$ 32 \\\hline 5 & \$ 40 \\\hline 6 & \$ 49 \\\hline\end{array}$$ If Chris's fixed costs decrease, then in the short run his profit-maximizing level of output will:

• A)not change.
• B)increase.
• C)decrease.
• D)only increase if he can earn a positive profit.

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Definitions:

Low-Cost Leadership

A strategy where a business aims to become the least costly producer in its industry while maintaining sufficient levels of quality.

Product Differentiation

The process of distinguishing a product or service from others in the market to make it more attractive to a particular target market.

Total Assets Turnover Ratio

A financial metric that measures the efficiency of a company's use of its assets in generating sales revenue; calculated by dividing sales revenue by total assets.

Sales

The transactions involved in selling goods or services in return for money or other compensation.