Suppose Chris Is a Potter Who Makes Mugs If the Market for Mugs Is Perfectly Competitive, and Mugs

question 57

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 the market for mugs is perfectly competitive, and mugs sell for $7.50 each, then at his profit-maximizing level of output, Chris will earn a ______ of ______ per day.

• A)loss; $2
• B)loss; $10
• C)profit; $2
• D)profit; $30

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Definitions:

Overhead Rates

The ratio used to allocate indirect costs to products or services, usually based on direct labor hours, machine hours, or direct labor cost.

Square-foot

A unit of area measurement equal to a square measuring one foot on each side, commonly used in real estate and architecture.

ABC

A refined costing method that determines the cost of activities without distortions and allocates costs based on activities that generate costs in specific products and services.

Products

Goods or services offered by a business or manufacturer to consumers for purchase.