Cindy’s Computer Corp. is considering a merger with Bobby’s Hard Drive, Inc. Cindy’s total operating costs of producing services are $3.4 million for a sales volume (SC) of $16 million. Bobby’s total operating costs of producing services are $2.5 million for a sales volume (SB) of $8 million.
a. Calculate the average cost of production for the two firms.
b. If the two firms merge, calculate the total average cost (TACCindyBobby) 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 $5.3 million for a sales volume of $24 million. Calculate the total average cost (ACCindyBobby) for the merged firm