A survey of a local market 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 percent or lower
B) 17.667 percent or higher
C) 17.333 percent or lower
D) 15.00 percent or lower

Question

Quizplus · Accepted Answer

To justify the merger, the new average cost should be less than or equal to the weighted average of the current costs, which is 17.667 percent.

A Survey of a Local Market Provided the Following Average