Firm B Is Willing to Be Acquired by fiRm a at a Price

question 48

Multiple Choice

Firm B is willing to be acquired by firm A at a price of $34 a share in either cash or stock. The incremental value of the proposed acquisition is estimated at $80,000. What is the amount of the merger premium per share if firm A acquires firm B in an all cash deal?

• A) $3.00
• B) $3.67
• C) $6.67
• D) $24.33
• E) $27.33

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Definitions:

MR > MC

A situation in marginal analysis where the marginal revenue (MR) exceeds the marginal cost (MC), suggesting a potential increase in profitability by expanding production.

P > ATC

A scenario in which the price of a good is greater than the average total cost of producing that good, indicating potential profitability for the firm.

Short Run

A period in economic analysis where at least one input is fixed while others can be varied.

Monopolistically Competitive Market

A monopolistically competitive market is a type of market structure characterized by many firms selling products that are similar but not identical, allowing for product differentiation.