Calculation of Average Costs with Economies of Scope Jewelry Designs

question 52

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.Calculate the average cost of production for the Jewelry and Beads firms,respectively.

• A)15 percent, 5.56 percent
• B)5.56 percent, 15 percent
• C)15 percent, 55.56 percent
• D)13.33 percent, 6.25 percent

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Definitions:

Beta

A measure of a security's volatility in relation to the overall market; used in the capital asset pricing model to determine the expected return of an asset.

Risk-Free Rate

The rate of return of an investment with no risk of financial loss, typically represented by government bonds.

Market Risk Premium

The extra return investors demand for holding a risky market portfolio instead of risk-free assets.

Required Rate Of Return

The minimum return an investor expects to achieve by investing in a particular asset, taking into account the risk associated with it.