Calculation of Average Costs with Economies of Scope Dee's Dry

question 63

Multiple Choice

Calculation of Average Costs with Economies of Scope 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 (J_P) 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%.

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

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Definitions:

Average Fixed Cost

Production's unchanging overheads split by the volume of goods produced.

Fixed Costs

Expenses that do not change with the level of output or sales, such as rent or salaries.

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Specifically made or purchased cakes to celebrate individuals' birthdays, often considered for their cultural significance and economic impact on the baking industry.

Average Variable Cost

The variable cost (costs that change with the level of output) per unit of output, calculated by dividing total variable costs by the quantity of output produced.