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 per cent, Bank B has assets of $20 million and average costs of 13 per cent while Bank C has assets of $30 million with average costs of 12 per cent. 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.

Question

Quizplus · Accepted Answer

The larger the bank's assets, the lower their average costs, indicating economies of scale. Therefore, with each increase in asset size, there is a decrease in average costs. Thus, there are significant economies of scale still present in the local markets.

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