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 values 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.

Question

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 values indicate that

The above values 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.

Quizplus · Accepted Answer

Banks B and C have more assets than Bank A, yet they have lower average costs. This indicates that there are economies of scale present, meaning that as the size of the bank increases, the average costs decrease. Therefore, Bank A could potentially benefit from increasing its assets and taking advantage of economies of scale to lower its average costs.

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