Suppose have just opened a store to sell espresso machines. Both you and a compe
ID: 1193178 • Letter: S
Question
Suppose have just opened a store to sell espresso machines. Both you and a competing store buy this machine from a manufacturer for SI 30 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 S200 per machine. You expect to sell about 6 machines a month at a price of S220 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 sell the machine at a lower price profitably although the cost of purchasing the machine is the same for the both of you? The competing store probably has a lower marginal cost of production. The competing store's goal is to maximize revenue and not profit. The competing store probably has a lower average cost because average fixed costs falls as output increases. The competing store probably has a lower average variable cost of production.Explanation / Answer
C. The competing store probably has a lower average cost because average fixed cost falls as output
increases.