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%, Bank B has assets of $20 million and average costs of 13% while Bank C has assets of $30 million with average costs of 12%.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 decreasing average costs with increasing size of banks indicate that there are still economies of scale present in the local market. Bank A has the highest average costs at 15%, while Bank C has the lowest average costs at 12%, despite having the largest assets. This suggests that Bank C is benefiting from economies of scale.

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