� = 3.69 - 0.007999Q� + 0.000005359Q2�2 + 25.0X1�1 (3.69) (3.08) (3.42) (3.50) where C� = average operating expense ratio, expressed as a percentage and defined as total operating expense ($ million) divided by total assets ($ million) times 100 percent. Q� = output; measured by total assets ($ million) X1�1 = ratio of the number of branches to total assets ($ million) Note: The number in parentheses below each coefficient is its respective t-statistic. Holding constant the effects of bank branching (X1�1), what is the level of total assets that minimizes the average operating expense ratio?
� = 3.69 - 0.007999Q� + 0.000005359Q2�2 + 25.0X1�1 (3.69) (3.08) (3.42) (3.50) where C� = average operating expense ratio, expressed as a percentage and defined as total operating expense ($ million) divided by total assets ($ million) times 100 percent. Q� = output; measured by total assets ($ million) X1�1 = ratio of the number of branches to total assets ($ million) Note: The number in parentheses below each coefficient is its respective t-statistic. Holding constant the effects of bank branching (X1�1), what is the level of total assets that minimizes the average operating expense ratio?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question
A study of 86 savings and loan associations in six northwestern states yielded the following cost function.
| C� | = | 3.69 | - | 0.007999Q� | + | 0.000005359Q2�2 | + | 25.0X1�1 |
| (3.69) | (3.08) | (3.42) | (3.50) | |||||
where C� = average operating expense ratio, expressed as a percentage and defined as total operating expense ($ million) divided by total assets ($ million) times 100 percent.
Q� = output; measured by total assets ($ million)
X1�1 = ratio of the number of branches to total assets ($ million)
Note: The number in parentheses below each coefficient is its respective t-statistic.
Holding constant the effects of bank branching (X1�1), what is the level of total assets that minimizes the average operating expense ratio?
$746.31 million
$1,562.70 million
$1,492.63 million
$461.31 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?
0.74%
1.17%
4.31%
3.72%
What is the ratio with 10 branches instead?
1.04%
4.61%
4.03%
1.48%
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