Question

1A) A bank in a medium-sized Midwestern city, Fifth Third Bank wants to determine the ATM fee that will maximize its profits from ATM operation. The bank managers experimented with a number of fees (in $0.25 increments) at selected ATMs. The marginal cost of an ATM transaction is $1.00. Calculate Total Revenue corresponding to each fee. Provide your answers using two decimal places even if the decimal places are zeros.

ATM Fee	Usage	Total Revenue
2.25	0
2.00	1,000
1.75	1,500
1.50	2,000
1.25	2,500
1.00	3,000

1B) A bank in a medium-sized Midwestern city, Fifth Third Bank wants to determine the ATM fee that will maximize its profits from ATM operation. The bank managers experimented with a number of fees (in $0.25 increments) at selected ATMs. The marginal cost of an ATM transaction is $1.00. Calculate the marginal revenue per transaction corresponding to each fee.

Provide your answers using two decimal places even if the decimal places are zeros.

ATM Fee	Usage	Marginal Revenue per Transaction
2.25	0
2.00	1,000
1.75	1,500
1.50	2,000
1.25	2,500
1.00	3,000

1C) A bank in a medium-sized Midwestern city, Fifth Third Bank wants to determine the ATM fee that will maximize its profits from ATM operation. The bank managers experimented with a number of fees (in $0.25 increments) at selected ATMs. The marginal cost of an ATM transaction is $1.00. Calculate the marginal cost per transaction corresponding to each fee.

Provide your answers using two decimal places even if the decimal places are zeros.

ATM Fee	Usage	Marginal Cost per Transaction
2.25	0
2.00	1,000
1.75	1,500
1.50	2,000
1.25	2,500
1.00	3,000

1D) A bank in a medium-sized Midwestern city, Fifth Third Bank wants to determine the ATM fee that will maximize its profits from ATM operation. The bank managers experimented with a number of fees (in $0.25 increments) at selected ATMs. The marginal cost of an ATM transaction is $1.00. What is the profit maximizing fee? ______

1E)

A bank in a medium-sized Midwestern city, Fifth Third Bank wants to determine the ATM fee that will maximize its profits from ATM operation. The bank managers experimented with a number of fees (in $0.25 increments) at selected ATMs. The marginal cost of an ATM transaction is $1.00. Calculate the amount of profit corresponding to each fee.

Provide your answers using two decimal places even if the decimal places are zeros.

ATM Fee	Usage	PROFIT
2.25	0
2.00	1,000
1.75	1,500
1.50	2,000
1.25	2,500
1.00	3,000

Answer 1

A)

Total Revenue=ATM Fee*Usage

Following schedule can be developed.

ATM Fee, P	Usage, Q	Total Revenue, TR=P*Q
2.25	0	0.00
2.00	1000	2000.00
1.75	1500	2625.00
1.50	2000	3000.00
1.25	2500	3125.00
1.00	3000	3000.00

B)

Marginal Revenue=Change in TR/Change in Usage

Suppose we move from fee of $2.25 to a fee of $2

MR=(2000-0)/(1000-0)=$2.00

Similarly, we can develop other values.

ATM Fee, P	Usage, Q	Total Revenue, TR=P*Q	MR=Change in TR/Change in Q
2.25	0	0.00
2.00	1000	2000.00	2.00
1.75	1500	2625.00	1.25
1.50	2000	3000.00	0.75
1.25	2500	3125.00	0.25
1.00	3000	3000.00	-0.25

C)

Marginal Cost is $1.00 at all fee levels (Given)

ATM Fee, P	Usage, Q	Marginal Cost, MC
2.25	0	1.00
2.00	1000	1.00
1.75	1500	1.00
1.50	2000	1.00
1.25	2500	1.00
1.00	3000	1.00

D)

Profit is maximized by increasing usage (decreasing ATM Fee) as long as MR is higher than or equal to MC.

We can see that MR is higher than MC at a fee of $1.75 while MR is less than MC at a fee of $1.50.

So, profit maximizing fee is $1.75

E)

Profit for each fee level can be calculated as under

ATM Fee, P	Usage, Q	Total Revenue, TR=P*Q	Total Cost=MC*Q	Profit= TR-TC
2.25	0	0.00	0.00	0.00
2.00	1000	2000.00	1000.00	1000.00
1.75	1500	2625.00	1500.00	1125.00
1.50	2000	3000.00	2000.00	1000.00
1.25	2500	3125.00	2500.00	625.00
1.00	3000	3000.00	3000.00	0.00