The Agriculture Development Bank of Pakistan (ADBP) was established in 1961 by the merger of the Agriculture Finance Corporation and the Agriculture Bank of Pakistan with the primary objective of providing credit and other financial services to the agriculture sector. With a 64 percent share in total institutional lending to the agriculture sector in 1995, the ADBP has emerged as the country’s largest single supplier of agriculture credit. A study was carried on the bank which shows that in order to expand its operations while remaining economically viable, the bank must exploit any cost advantages that are available to it by adopting the most cost-efficient size and product mix. The study implies that the marginal costs of servicing both loan and deposit accounts decline as bank branches grow larger in size in terms of either the number of loans or the number of deposits. This confirms that the branches operating at a larger scale of production have attained greater cost efficiency in terms of servicing loan and deposit accounts.
QUESTION:Being a student of economics, analyze the above case of ADBP carefully. Identify which concept of economics is applied in this case. Explain that concept and justify the reason of applying that concept.
