An example of economies of scale in the provision of financial services is
A) investing in a diversified collection of assets.
B) providing depositors with a variety of savings certificates.
C) spreading the cost of borrowed funds over many customers.
D) spreading the cost of writing a standardized contract over many borrowers.

Question

Quizplus · Accepted Answer

The cost of writing a standardized contract can be spread over many borrowers when financial institutions provide loans to a large number of borrowers. By doing so, they can achieve economies of scale, which means that the cost per unit of output decreases as the output increases. This is because the cost of producing a standardized contract can be amortized over many borrowers, reducing the cost of each contract. As a result, the financial institution can afford to lend at a lower cost to its customers, becoming more competitive in the market.

An Example of Economies of Scale in the Provision of Financial