If the average cost per unit decreases when a horizontal merger occurs then the combined ﬁrm is beneﬁting from synergy arising from:
A) A reduction in net working capital.
B) A beachhead.
C) Economies of scale.
D) Market power.
E) Revenue enhancement.

Question

Quizplus · Accepted Answer

Economies of scale refer to the cost advantages that a firm can achieve by increasing its production scale. When a horizontal merger occurs, the combined firm can reduce its average cost per unit by taking advantage of economies of scale. This is because the merged firm can now produce a larger output, which can be spread over a larger base of fixed costs. This results in a lower average cost per unit produced, which benefits the firm. Therefore, the correct answer is C.

If the Average Cost Per Unit Decreases When a Horizontal