Explain two advantages that firms may gain from a horizontal merger.

Firstly, they may be able to take advantage of the economies of scale. As a firm grows in size and output, it benefits from lower average costs of production. Some examples of economies of scale are:Technical economies of scale: achieved by improving the capital equipment and production processes that a firm uses. This increases productivity and reduces average costs.Financial internal economies of scale: Allow firms to borrow at lower interest rates than their competitiors i.e. at better terms, reducing the costs of capital expansion.Secondly, they may benefit from rationalisation. Savings could occur by merging their production processes e.g. operating in one warehouse, having one management team so lower wage costs.