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

question 63

Multiple Choice

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.

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Definitions:

Revenue

The aggregate revenue from goods sold or services provided that form the main activities of a business.

Profit-Maximizing Firms

Companies that operate with the goal of making the highest possible profit given their resources and market conditions.

Market Supply

The total amount of a specific good or service that is available for purchase in a given market at various prices, over a specified period.

Market Demand

The overall amount of a product or service that every consumer in a market is ready and capable of buying at different price levels.