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?

Question

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?

Quizplus · Accepted Answer

The lower average total cost of production at Ralph's Recliners is likely due to economies of scale, as they are selling more output. This means that their fixed costs are spread over a larger quantity of output, resulting in lower average fixed costs.

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