The following information is available on the average costs of the three major banks in a given local market.Bank A has assets of $10 million and average costs are 15 percent, Bank B has assets of $20 million and average costs of 13 percent while Bank C has assets of $30 million with average costs of 12 percent.Average costs are measured as a proportion of total assets. The above figures indicate that
A)there are significant economies of scale still present in the local markets.
B)there are significant diseconomies of scale still present in the local markets.
C)there are significant economies of scope still present in the local markets.
D)there are significant diseconomies of scope still present in the local markets.
E)there is not enough information to determine economies of scale or scope.

Question

Quizplus · Accepted Answer

Bank A has the smallest assets and highest average costs, while Bank C has the largest assets and lowest average costs. This indicates that as the size of the bank (i.e. its assets) increases, the average costs decrease. This suggests economies of scale, as larger banks are able to spread their fixed costs over a larger asset base, resulting in lower average costs. Therefore, choice A is the correct answer.

The Following Information Is Available on the Average Costs of the Three