Calculation of Average Costs with Economies of Scope Crib World is considering a merger with Tots Supply Stores.Crib's total operating costs of producing services are $250,000 for sales volume of $1.25 million.Tots' total operating costs of producing services are $210,000 for a sales volume (J_P)of $900,000.For a sales volume of $2.15 million,calculate the reduction in production costs the merged firms need to experience such that the total average cost (TAC)for the merged firms is equal to 17.5 percent.

Question

Quizplus · Accepted Answer

To find the reduction in production costs needed, first calculate the target total costs for the merged firm to achieve a TAC of 17.5% on $2.15 million sales volume: $2.15 million * 0.175 = $376,250. The current total costs are $250,000 + $210,000 = $460,000. The reduction needed is $460,000 - $376,250 = $83,750.