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A study of 86 savings and loan associations in six northwestern states yielded the following cost function. C = 3.12 - 0.006768Q + 0.000005359Q2 +
A study of 86 savings and loan associations in six northwestern states yielded the following cost function. C = 3.12 - 0.006768Q + 0.000005359Q2 + 21.1X1 (3.12) (2.61) (2.89) (2.96) 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 = 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 ), what is the level of total assets that minimizes the average operating expense ratio? $1,262.92 million $1,558.81 million $631.46 million $460.99 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? 1.17% 3.15% 1.02% 5.63% What is the ratio with 10 branches instead? 5.93% 1.47% 3.45% 1.32%
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