Consider the Following Two FIs: Company a Has $500 Million

question 39

Multiple Choice

Consider the following two FIs: Company A has $500 million in total assets and total costs equal to $200 million. Company B has $60 million in total assets and total costs equal to $24 million.
Assume a third FI (company C) operates in the same market with two FIs, and it has $800 million in assets and total costs of $420 million. What can you conclude about the cost structure of the FIs in this market?

• A) There are significant economies of scale because companies A, B, and C coexist in the industry.
• B) There are no significant economies of scale because both companies A and C are much larger than company B.
• C) There are no significant economies of scale because the unit costs are constant.
• D) There are significant economies of scale beyond the $500 million asset size.
• E) There are no significant economies of scale because the unit costs increase as size increases.

Understand the concept of fixed and variable costs in business operations.

Calculate and understand the impact of economic profits and losses on business decisions.

Identify and calculate break-even points for businesses.

Understand the role of market entry and exit decisions in profit maximization.

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