A study of 86 savings and loan associations in six northwestern states yielded the following cost function.
Question:
A study of 86 savings and loan associations in six northwestern states yielded the following cost function.
CC | = | 3.41 | - | 0.007384QQ | + | 0.000005359Q2Q2 | + | 23.0X1X1 |
(3.41) | (2.84) | (3.16) | (3.23) |
where CC = average operating expense ratio, expressed as a percentage and defined as total operating expense ($ million) divided by total assets ($ million) times 100 percent.
QQ = output; measured by total assets ($ million)
X1X1 = ratio of the number of branches to total assets ($ million)
Holding constant the effects of bank branching (X1X1), what is the level of total assets that minimizes the average operating expense ratio?
$1,377.87 million
$461.81 million
$1,557.42 million
$688.93 million
What is the average operating expense ratio for a savings and loan association with the level of total assets determined in the previous part and 1 branch?
0.90%
1.18%
4.94%
3.44%
What is the ratio with 10 branches instead?
3.74%
5.24%
1.48%
1.20%
Bank Management and Financial Services
ISBN: 978-0078034671
9th edition
Authors: Peter Rose, Sylvia Hudgins