Table 11-8 Elegant Settings Manufactures Stainless Steel Cutlery. Table 11-8

question 128

Multiple Choice

Table 11-8
Elegant Settings manufactures stainless steel cutlery. Table 11-8 shows the company's cost data.
-Two stores-Lazy Guy's and Ralph's Recliners-are located in the same city. Both stores buy recliner chairs from the same manufacturer at the same price and both stores are about the same size, so that the fixed costs of production for both stores are the same. Ralph's Recliners sells more recliners per month and Ralph's has a lower average total cost of production. Which of the following can explain why the average total cost of production is lower for Ralph's Recliners?

• A) Because Ralph's Recliners sells more output, its average fixed costs are lower than Lazy Guy's average fixed cost.
• B) The rent Lazy Guy's pays for its building is greater than the rent paid by Ralph's Recliners.
• C) Ralph's explicit costs are less because Ralph owns the land on which his building is located. Lazy Guy must make lease payments for the land on which its store is located.
• D) The price of recliners charged by Ralph's is greater than the price charged by Lazy Guy's.

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