Which one of the following statements is correct?
A)Firms with large net operating losses tend to be acquiring firms rather than target firms.
B)The leverage associated with an acquisition increases the tax liability of the acquiring firm.
C)If either an increase or a decrease in the level of production causes the average cost per unit to increase then the firm is currently operating at its optimal production level.
D)Firms can always benefit from economies of scale if they increase the size of their firm through acquisitions.
E)If a firm uses it surplus cash to acquire another firm then the shareholders of the acquiring firm immediately incur a tax liability related to the transaction.

Question

Quizplus · Accepted Answer

Statement C is correct because it describes a situation where a firm is operating at the point of minimum average cost, which is considered the optimal production level. If increasing or decreasing production from this point increases average costs, it indicates that the firm is currently operating where economies of scale are maximized and diseconomies of scale have not yet begun, which is the definition of optimal production level.

Which One of the Following Statements Is Correct