Use the following information to answer Questions 39 - 43
Jim's Production is planning on acquiring a competitive firm with a view to change production technologies.The two firm technologies produce the same output but with different cost functions.Jim's Production technology has a cost function = 1000 + 0.10Q whereas the competitor's cost function = 500 + 0.15Q.
-If the company plans to produce 5000 units of output,is acquiring the competitor's technology a good idea?
A)Yes,because the competitor has a low-marginal-cost technology
B)Yes,because the competitor has a high-marginal-cost technology
C)Yes,because the company plans to produce less than the break-even quantity
D)Both b and c

Question

Quizplus · Accepted Answer

Acquiring the competitor's technology would be a good idea because their cost function has a higher marginal cost than Jim's Production, meaning that their cost will increase at a faster rate than Jim's Production as output increases. This will give Jim's Production a cost advantage in the long run. Additionally, since the company plans to produce less than the breakeven quantity (where total revenue equals total cost), acquiring the competitor's technology would still be profitable even with their higher cost function.

Use the Following Information to Answer Questions 39 - 43