October 14, 2020
###### Suppose that the real interest rate is constant over time and equal to 10%. Consider a two-period economy where coconuts are the only good.
October 14, 2020

1. (12 points – parts A, B, and C) Chase employs both humans and machines to process customer transactions. Chase knows that ATM’s and bank tellers both exhibit diminishing returns as factor inputs. Assume that each Chase ATM, on average, currently processes 1,000 transactions per month in the Chicago market. The ATM’s used by Chase incur costs of \$2,000 per month. This includes lease payments, service, maintenance, etc. A teller at Chase in the Chicago market earns, on average, \$3,000 per month in salary and benefits. The average teller for Chase currently processes 900 transactions per month. Answering the following questions based upon only this information. 1A. (4 points) Holding input prices constant, what factor input adjustment(s) is/are called for to move Chase toward its least cost optimization of these two factor inputs (i.e. which input factor should be increased or decreased)? 1B. (4 points) Explain how/why your adjustment(s) would move Chase toward its least cost optimization of these two factor inputs?

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Graded Practice Problem Set 3 – Spring 2018

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1. (12 points – parts A, B, and C) Chase employs both humans and machines to process customer transactions. Chase knows that ATM’s and bank tellers both exhibit diminishing returns as factor inputs. Assume that each Chase ATM, on average, currently processes 1,000 transactions per month in the Chicago market. The ATM’s used by Chase incur costs of \$2,000 per month. This includes lease payments, service, maintenance, etc. A teller at Chase in the Chicago market earns, on average, \$3,000 per month in salary and benefits. The average teller for Chase currently processes 900 transactions per month. Answering the following questions based upon only this information. 1C. (4 points) At what point would Chase achieve its least cost optimization of these two factor inputs (i.e. provide a
numerical example with respect to the number of transactions processed for the average ATM and average teller in the Chicago market that reflects this optimization condition.)?

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