Question

You produce elastic bracelets that cost 25 cents to make. Your friend tells you to charge a price of 10 cents for each bracelet. At this price, you will _____. lose money cover your costs earn a profit

Answer 1

You will lose money as it costs more to produce than to sell so you would end up with a negative income. 

Answer 2

The correct answer is that you will lose money, if you charge only 10 cents for a product that originally cost you a further 15 cents to produce.

Step-by-step explanation:

This is because in the end, you are still 15 cents short of what is needed to simply recover the original investment. The only way in which a cost as low as 10 cents per bracelet, would in the end lead to making profit, and not merely keeping the producer afloat, let alone be in deficit, is by balancing all through excess selling of the product. This would be because consumers, having access to a broad spectrum of products, will start seeking two things: quality and price. If the bracelets produced at 25 cents, but sold at 10 cents, are the best and the best priced, the amount sold will cover for the missing 15 cents of the original price. But the sell would have to be massive. Otherwise, the principle stands; you will lose money because you are not even covering the basic expenses for production.