Suppose You Have Just Opened a Store to Sell Espresso

question 147

Multiple Choice

Suppose you have just opened a store to sell espresso machines.Both you and a competing store buy this machine from a manufacturer for $130 each.Your competitor who has a store of the same size as yours is currently selling about 10 machines a month at a price of $200 per machine.You expect to sell about 6 machines a month at a price of $220 per machine.If you lower your price, you expect to make a loss.Which of the following could explain why your competitor is able to profitably sell the machine at a lower price although the cost of purchasing the machine is the same for both of you?

• A)The competing store probably has a lower marginal cost of production.
• B)The competing store probably has a lower average variable cost of production.
• C)The competing store's goal is to maximize revenue and not profit.
• D)The competing store probably has a lower average cost because average fixed cost falls as output increases.

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Definitions:

Cerebral Hemispheres

The two sections of the cortex on the left and right sides of the brain.

Cerebrum

The upper part of the brain consisting of the two hemispheres and the structures that connect them.

Upper Part

The higher section or portion of an object, area, or body.

Cortex

The outer layer of the cerebrum of the mammalian brain, involved in higher brain functions such as thought and action.