Mergers may provide reductions in average production cost as a result of:
A) increased market price.
B) increased financing.
C) economies of scale.
D) diversification.

Question

Quizplus · Accepted Answer

Mergers can result in economies of scale, which arise from a larger scale of production reducing average cost per unit. This can occur due to increased bargaining power with suppliers, greater utilization of fixed assets, and spreading of administrative and other costs over a larger volume of production. Increased market price (A) may benefit the merged entity but will not necessarily reduce average production costs. Increased financing (B) may improve access to capital but will not necessarily reduce average production costs. Diversification (D) may provide benefits such as risk reduction but does not directly relate to average production cost reductions.

Mergers May Provide Reductions in Average Production Cost as a Result