Gamma Corporation, one of the firms that retains you as a financial analyst, is considering buying out Beta Corporation, a small manufacturing firm that is now barely operating at a profit. You recommend the buyout because you believe that new management could substantially reduce production costs, and thereby increase profit to a quite attractive level. You collect the following product information in order to convince the CEO at Gamma Corporation that Beta is indeed operating inefficiently:
MPL = 10 PL = $20
MPK = 15 PK = $15
Explain how these data provide evidence of inefficiency. How could the new manager of Beta Corporation improve efficiency?

  • CreatedNovember 18, 2014
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