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.

Question

Quizplus · Accepted Answer

The lower average total cost of production for Ralph's Recliners can be explained by the fact that they sell more recliners per month, which leads to a larger output and a lower average fixed cost. This is because fixed costs are spread over a larger number of units, resulting in a lower per-unit cost. The other options are not directly related to the difference in average total cost of production between the two stores.

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