George’s Dry Cleaning is considering a merger with Weezzie’s Laundry Supply Stores. George’s total operating costs of producing services are $550,000 for sales volume (SG) of $4.5 million. Weezzie’s total operating costs of producing services are $185,000 for a sales volume (SW) of $2 million.
a. Calculate the average cost of production for the two firms.
b. For a sales volume of $6.5 million, calculate the reduction in production costs the merged firms need to experience such that the total average cost (ACGeorgeWeezie) for the merged firms is equal to 10 percent.