Since the 1980s, Wal-Mart stores have appeared in almost every community in America. Wal-Mart buys its goods in large quantities and, therefore, at cheaper prices. Wal-Mart also locates its stores where land prices are low, usually outside of the community business district. Many customers shop at Wal-Mart because of low prices. Local retailers, like the neighborhood drug store, often go out of business because they lose customers. This story demonstrates that
A)consumers do not react to changing prices.
B)there are diseconomies of scale in retail sales.
C)there are economies of scale in retail sales.
D)there are diminishing returns to producing and selling retail goods.

Question

Quizplus · Accepted Answer

The story demonstrates economies of scale in retail sales because Wal-Mart is able to buy goods at cheaper prices due to its ability to purchase them in large quantities, and it locates its stores where land prices are low, which also reduces its costs. This allows Wal-Mart to offer lower prices to customers, leading many to choose to shop there over local retailers. This puts pressure on local retailers, who may not be able to compete on price, and therefore, may go out of business.

Since the 1980s, Wal-Mart Stores Have Appeared in Almost Every