Dee's Dry Cleaning Is Considering a Merger with Larry's Laundry

question 85

Multiple Choice

Dee's Dry Cleaning is considering a merger with Larry's Laundry Supply Stores. Dee's total operating costs of producing services are $600,000 for sales volume of $4 million. Larry's total operating costs of producing services are $200,000 for a sales volume (JP) of $1 million. For a sales volume of $5 million, calculate the reduction in production costs the merged firms need to experience such that the total average cost (TAC) for the merged firms is equal to 10 percent.

• A) Decrease of $500,000
• B) Decrease of $300,000
• C) Decrease of $100,000
• D) Decrease of $200,000