Question

You own a small bank in a state that is now considering allowing interstate banking. You oppose interstate banking because it will be possible to for the large money center banks in New York, Chicago, and San Francisco to open branches in your bank's geographic market area. While proponents of interstate banking point to the benefits to consumers of increased competition, you worry that economies of scale might ultimately force your now profitable bank out of business. Explain how economies of scale (if significant economies of scale in fact do exist) could result in your bank being forced out of business in the long run.

Answer 1

Take a shot, what do you think?
Hint: economies of scale imply a declining average cost curve