A survey of a national market has provided the following average cost data: Jackson County Construction (JCC) has assets of $2.55 million and an average cost of 30 percent. Arkansas Architects (AA) has assets of $1.7 million and an average cost of 25 percent. Colorado Home Builders (CHB) has assets of $1 million and an average cost of 15 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.

a. What should the average cost after the acquisition be for JCC to justify this merger?

b. If JCC plans to reduce operating costs by $425,000 after the merger, what will the average cost be for the new firm?