Two Stores-Lazy Guys and Ralph's Recliners-Are Located in the Same

question 24

Multiple Choice

Two stores-Lazy Guys 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 Guys' average fixed costs.
• B)The rent Lazy Guys 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 Guys 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 Guys.

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Definitions:

MC = MR

A condition where marginal cost equals marginal revenue, often used to determine the profit-maximizing level of output in economic theory.

Monopolistically Competitive Industry

A market structure in which many firms sell products that are similar but not identical, allowing for competition based on quality, price, and marketing.

Output

The quantity of goods or services produced within a given time period.

Profit-Maximizing Rule

The principle that firms maximize profit by producing at the level where marginal revenue equals marginal cost.