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Question
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.
Answer
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