Adam Was a Professional Classical Guitar Player Until His Motorcycle

question 74

Multiple Choice

Adam 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 $900 and the fixed monthly operating costs are as follows: $$\begin{array} { | l | r | } \hline \text { Rent and utilities } & \$ 800 \\\hline \text { Wages and benefits to luthier } & 3,000 \\\hline \text { Other expenses } & 500 \\\hline\end{array}$$ Adam'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 Adam have to sell each month to break even?

• A) 6 guitars
• B) 5 guitars
• C) 7 guitars
• D) 8 guitars

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Definitions:

Mass Transit

Public transportation systems designed to move large numbers of people efficiently via buses, trains, subways, and other modes of transport.

Price Elasticity

A gauge of the responsiveness of the quantity of a good supplied or sought after to fluctuations in its price.

Equilibrium Point

A state in a market where the supply of goods matches demand, resulting in stable prices and quantities.