What should Red Brick Bank aim for in terms of new deposits based on marginal revenue and cost analysis?
Understand the Problem
The question is asking for the optimal target amount of new deposits that Red Brick Bank should aim for, based on an analysis of marginal revenue and cost. This involves understanding how these economic concepts can help determine the right level of deposits to maximize profitability.
Answer
$500 million in new deposits.
Red Brick Bank should aim to attract $500 million in new deposits, as the marginal revenue rate is greater than the marginal cost rate up to that amount.
Answer for screen readers
Red Brick Bank should aim to attract $500 million in new deposits, as the marginal revenue rate is greater than the marginal cost rate up to that amount.
More Information
In terms of marginal revenue and cost analysis, banks aim to maximize the difference between marginal revenue and marginal cost. Red Brick Bank would benefit by targeting deposit levels where their marginal revenue still exceeds marginal cost.
Tips
A common mistake is not accurately assessing the point where marginal revenue equals marginal cost, which can lead to non-optimal decision-making.
Sources
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