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    Question

    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 Correct Answer Incorrect Answer
    B there are diseconomies of scale in retail sales Correct Answer Incorrect Answer
    C there are economies of scale in retail sales Correct Answer Incorrect Answer
    D there are diminishing returns to producing and selling retail goods Correct Answer Incorrect Answer

    Solution

    The reason behind is that there are economies of scale in retail sales. Because the large is the firm, the lower are average costs.

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