Two practices want to merge. The price elasticity of demand -0.30. One has a volume of 20,400, fixed costs of $50,000, marginal costs of $20, and a market share of 8%. The other has a volume of 30,600, fixed costs of $60,000, marginal costs of $20, and a market share of 12%. The merged firm has a volume of 51,000, fixed costs of $100,000, marginal costs of $20, and a market share of 20%. How will the merger change costs?
A) It will not, average and marginal costs will not change.
B) It will increase costs, as average costs will rise.
C) It will reduce costs, as average costs will fall.
D) It is not clear. There is not enough information.
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