Theo sells baby rattles at $3 per unit and each month he sells 3,000 units out of the back of his wagon in the city park. Theo has no employees and estimates he could rent his wagon to another entrepreneur for $2,000 eachmonth. He also knows that he could earn about $5,000 a month as a model. He pays $1 per unit for plastic, his only raw material.Question: Should Theo continue to sell his baby rattles in the park? Explain

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Asked Nov 14, 2019
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Theo sells baby rattles at $3 per unit and each month he sells 3,000 units out of the back of his wagon in the city park. Theo has no employees and estimates he could rent his wagon to another entrepreneur for $2,000 each
month. He also knows that he could earn about $5,000 a month as a model. He pays $1 per unit for plastic, his only raw material.

Question: Should Theo continue to sell his baby rattles in the park? Explain

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Expert Answer

Step 1

To determine whether person T should sell baby rattles in the park or not.

Step 2

The price of each baby rattle is $3 and the monthly sales equal 3,000 units. The total revenue generated by person T is $9,000. There is a per unit cost of $1 per unit which equals $3,000 for 3,000 units sold. So, the monthly profit is calculated below:

Profit = Total Revenue - Total Cost

Profit = 9,000 - 3,000

Profit = 6,000.

So, person T can earn $6,000 by selling baby rattles in the park.

 

Step 3

On the other hand, if person T decides to rent the wagon at $2,000 per month and earn $5,000 as a model then the total mo...

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