Peter’s TV Supplies is considering a merger with Jan’s Radio Supply Stores. Peter’s total operating costs of producing services are $250,000 for a sales volume (SP) of $4.5 million. Jan’s total operating costs of producing services are $50,000 for a sales volume (SJ) of $550,000.
a. Calculate the average cost of production for the two firms.
b. If the two firms merge, calculate the total average cost (TAC) for the merged firm assuming no synergies.
c. Suppose, instead, that synergies in the production process result in a cost of production for the merged firms totaling $270,000 for a sales volume of $5,050,000. Calculate the total average cost (ACPeterJan) for the merged firm.