Which One of the Following Statements Is Correct Concerning the Cost

question 42

Multiple Choice

Which one of the following statements is correct concerning the cost of two firms merging? The cost:

• A) is fixed when the merger is financed with cash.
• B) can be affected by postmerger gains if cash is used.
• C) decreases as the postmerger share price increases when stock is used to finance the merger.
• D) is not determined until after the merger, regardless of the type of financing.

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Definitions:

Minimum Efficient Scale

The smallest level of production at which long-term average total costs are minimized.

Natural-Monopoly Situation

A market condition in which a single firm can produce output at a lower cost than can multiple firms, leading to a monopoly justified by efficiencies of scale.

Implicit Costs

The opportunity costs that arise from using resources that a business already owns rather than earning revenue from those resources elsewhere.

Explicit Costs

Direct, out-of-pocket expenses incurred in conducting a business activity, such as wages, rent, and materials.