Suppose You Have Just Opened a Store to Sell Espresso

question 157

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 the 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:

Instrumentality

The quality of being useful or instrumental in achieving a goal or purpose.

Valence

In motivational theory, the value an individual places on the rewards of an outcome, which affects their motivation to work.

Performance

The act of carrying out an activity or fulfilling a task with a certain level of efficiency and effectiveness, often measured against pre-established standards.

Self-efficacy

An individual's belief in their capacity to execute behaviors necessary to produce specific performance achievements.