Question #17
Reading: Reading 14 Financial Statement Modeling
PDF File: Reading 14 Financial Statement Modeling.pdf
Page: 10
Status: Unattempted
Question
When comparing a large company with a much smaller company, which of the following statements regarding economies of scale is most accurate?
Answer Choices:
A. An analyst will conclude that economies of scale are present in the industry if the larger company has higher revenues and a higher gross profit margin
B. An analyst will conclude that economies of scale are present in the industry if the larger company has higher revenues and higher gross profit
C. An analyst will conclude that economies of scale are present in the industry if the smaller company has a higher gross margin and lower revenues
Explanation
Economies of scale are evidenced by larger companies displaying larger gross margins.
Having a larger revenue figure and a larger gross profit does not necessarily imply a larger
margin.