Calculation of Average Costs with Economies of Scope Jewelry Designs

question 78

Multiple Choice

Calculation of Average Costs with Economies of Scope Jewelry Designs is considering a merger with Beads Supply Stores. Jewelry's total operating costs of producing services are $300,000 for sales volume of $2 million. Beads' total operating costs of producing services are $125,000 for a sales volume (J_P) of $2.25 million. For a sales volume of $4.25 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 8%.

• A) decrease of $340,000
• B) decrease of $85,000
• C) decrease of $40,000
• D) decrease of $25,000