Colin Was a Professional Classical Guitar Player Until His Motorcycle

question 3

Multiple Choice

Colin was a professional classical guitar player until his motorcycle accident that left him disabled. After long months of therapy, he hired an experienced luthier (maker of stringed instruments) and started a small shop to make and sell Spanish guitars. The guitars sell for $700 and the fixed monthly operating costs are as follows: $$\begin{array} { | l | r | } \hline \text { Rent and utilities } & \$ 800 \\\hline \text { Wages and benefits to luthier } & 2,500 \\\hline \text { Other expenses } & 480 \\\hline\end{array}$$ Colin's accountant told him about contribution margin ratios and he understood clearly that for every dollar of sales, $0.60 went to cover his fixed costs, and that anything past that point was pure profit.
How many guitars does Colin have to sell each month to break even?

• A) 6 guitars
• B) 14 guitars
• C) 7 guitars
• D) 9 guitars

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Definitions:

Prisoner's Dilemma

A situation in game theory where two individuals acting in their own self-interest do not produce the optimal outcome, showing the conflict between personal and collective rationality.

Nash Equilibrium

An idea in game theory stating that no participant can gain an advantage by altering their strategy if all other participants maintain their current strategies.

Cooperating

The act of working together towards a common goal or purpose, often implying mutual assistance and collaboration.

Nash Equilibrium

A concept in game theory where no participant can gain by a unilateral change of strategy if the strategies of the others remain unchanged.