Economies of Scope a Survey of a Local Market Has

question 89

Multiple Choice

Economies of Scope A survey of a local market has provided the following average cost data: Johnson Construction Corp. (JCC) has assets of $5 million and an average cost of 15 percent. Anderson Architects (AA) has assets of $8 million and an average cost of 20 percent. Cole Home Builders (CHB) has assets of $8 million and an average cost of 17 percent. For each firm, average costs are measured as a proportion of assets. JCC is planning to acquire AA and CHB with the expectation of reducing overall average costs by eliminating the duplication of services. What should be the average cost after the acquisition for JCC to justify this merger?

• A) 17.667% or lower
• B) 17.667% or higher
• C) 17.333% or lower
• D) 15.00% or lower

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Definitions:

Horizontal Merger

A business consolidation that occurs between firms operating in the same industry, often to create more efficient economies of scale.

Chrysler

An American automotive company, known for manufacturing and selling vehicles, and part of the larger automotive group Stellantis.

American Motors

A now-defunct American automobile company that was known for producing vehicles from 1954 until 1987.

Alcoa Case

A landmark antitrust case in the United States in which the Aluminum Company of America (Alcoa) was found to have monopolized the aluminum industry through various means, leading to significant implications for antitrust law.