Calculation of Average Costs with Economies of Scope Baby Supplies

question 23

Multiple Choice

Calculation of Average Costs with Economies of Scope Baby Supplies is considering a merger with Tot Toy Stores. Baby's total operating costs of producing services are $450,000 for sales volume of $2.15 million. Tot's total operating costs of producing services are $250,000 for a sales volume (J_P) of $975,000.For a sales volume of $3.125 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 19.5%.

• A) decrease of $609,375
• B) decrease of $90,625
• C) decrease of $9,375
• D) decrease of $159,375

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Definitions:

Quote Sheet

A document or digital view listing the price quotes for various financial instruments or commodities, often used in trading.

Convertible Bond

A type of bond that can be converted into a predetermined amount of the company's equity, usually at the discretion of the bondholder.

Market Conversion Value

The current market value of a convertible security if it were converted into the underlying shares of stock today.

Conversion Ratio

The conversion ratio is the number of shares an investor receives when converting a convertible security, such as a convertible bond or preferred stock, into common stock.