Suppose That Gigantic Company Is Increasing in Size

question 21

Multiple Choice

Suppose that Gigantic Company is increasing in size. As Gigantic Company grows, demand for inputs causes input prices to rise. It is likely that continued growth will result in

• A) economies of scale.
• B) reduced fixed costs.
• C) diseconomies of scale.
• D) increasing marginal returns.

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Definitions:

Leverage Ratios

The ratio of loans and other investments to the firm’s capital assets.

Mortgage-backed Securities

Financial instruments created by pooling mortgages and selling the rights to the cash flows from these mortgages to investors.

Secondary Mortgage Market

A market in which mortgages originated by a lender are sold to another financial institution. In recent years, the major buyers in this market have been Fannie Mae, Freddie Mac, and large investment banks.

Lending Standards

The criteria and guidelines used by financial institutions to determine the creditworthiness of prospective borrowers and to make decisions about loan applications.