Consider the following assessment of economies of scale for 476 actual banks in Texas. Economies were assessed for 2015 data where output is assets, and inputs are labor and two types of deposits. An index for Average Cost is given on the vertical axis and banks are arrayed by number of locations on the horizontal axis. This simulates a LRAC curve for Texas banks. (Reference ECO, section 7.5 for more detail on LRAC). A. Based on the graph, are there increasing returns to scale (IRS) for Texas banks? Explain by defining IRS and, if IRS exists, the size range for economies of scale. B. Based on the graph, are there constant return to scale (CRS) and decreasing return to scale (DRS) ? If so, across what size of banks have CRS or DRS? C. Are small banks (those with less than 10 locations) at a major cost disadvantage relative to large Texas banks (those with 300 locations)? If so, what is the scale of the relative disadvantage (e.g., 1.5 to 1, or 5 to 1, etc.). Explain in one sentence [47] Texas Banks and Economies of Scale 2015 476 Texas Banks 2015 AC* EOS 2.1 19 1.8 Are There Economies of Scale? 1.7 Are they a Barrier to Entry for Small Banks? 1.6 15 LRAC 14 Asset/Output Range: 13 Lamar Nati. Bank, Bloomburg $17M Neighborhood Nati., Dallas $71,881M 1.2 cr's O.R 0.7 045 50 100 150 200 250 300 400 AC*=average cost index based on SE. Banks