if the cost of plaster and labor were $10 per gnome and everything else is as in the problem (gnome molds cost $1,000, interest rate is 10%) , what is the lowest price of gnomes at which there would be a positive supply in the long run?

A) $10
B) $11
C) $20
D) $12.20
E) $12

Question

Taylor Criddle · Accepted Answer

Final Answer : D, Explanation :  At a cost of $10 per gnome, the total cost to produce 1,000 gnomes would be:Cost per gnome x Number of gnomes = $10 x 1,000 = $10,000Adding the fixed cost of the molds ($1,000), the total cost of production is $11,000.To break even, the gnomes must be sold for at least $11 each:Break Even Point = Total Cost / Quantity = $11,000 / 1,000 = $11Therefore, the lowest price of gnomes at which there would be a positive supply in the long run is slightly above the break-even point due to the presence of an interest rate on the initial investment. This means that the gnomes must be sold at a price higher than $11 to cover both the variable cost and a proportion of fixed cost. As such, option D ($12.20) is the best choice.

if the cost of plaster and labor were $10 per gnome and everything else is as in the problem (gnome molds cost $1,000, interest rate is 10%) , what is the lowest price of gnomes at which there would be a positive supply in the long run?

A) $10
B) $11
C) $20
D) $12.20
E) $12

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Learning Objectives

Related questions

if the cost of plaster and labor were $10 per gnome and everything else is as in the problem (gnome molds cost $1,000, interest rate is 10%) , what is the lowest price of gnomes at which there would be a positive supply in the long run?A) $10B) $11C) $20D) $12.20E) $12

Definitions

Learning Objectives

Learning Objectives

Related questions

if the cost of plaster and labor were $10 per gnome and everything else is as in the problem (gnome molds cost $1,000, interest rate is 10%) , what is the lowest price of gnomes at which there would be a positive supply in the long run?

A) $10
B) $11
C) $20
D) $12.20
E) $12