Banking Practice Showdown 2025 – Vault into Your Future Success!

Question: 1 / 400

What indicates that banks experience economies of scale?

Marginal costs decrease as output increases

Total costs decrease as output increases

Average unit costs increase as output decreases

Average unit costs decrease as output increases

The correct choice illustrates the principle of economies of scale, which occurs when increasing production leads to lower average costs per unit. As banks scale up their operations, the fixed costs (like administrative expenses, technology investments, and facilities) are spread over a larger number of transactions or services. This can effectively lower the average cost of each service provided or transaction processed, demonstrating that average unit costs decrease as output increases.

By increasing the volume of services offered without a corresponding increase in total costs, banks can achieve more efficient production levels. This enables them to remain competitive in pricing and potentially enhances profitability. Understanding this concept is crucial for evaluating the financial health of banks as they expand their operations.

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