Consider the Monopolistically Competitive Model of bank- ing. Suppose that the number of Depositors is given...

Transcribed Image Text:

Consider the Monopolistically Competitive Model of bank- ing. Suppose that the number of Depositors is given by D 1600, the transportation cost per distance travelled to the fixed cost of setting up a bank, f = 10 and that the risk free rate of return available to banks r= 1.1 | (a) What is the equilibrium number of banks? (b) What is the equilibrium deposit rate, rp? (c) What is the optimal number of banks? (d) What are the profits of the banks at the optimal number of banks? (e) What is the cost to the economy of the optimal banking system and the equilibrium banking system (The sum of the set up costs and the transportation costs) ? Consider the Monopolistically Competitive Model of bank- ing. Suppose that the number of Depositors is given by D 1600, the transportation cost per distance travelled to the fixed cost of setting up a bank, f = 10 and that the risk free rate of return available to banks r= 1.1 | (a) What is the equilibrium number of banks? (b) What is the equilibrium deposit rate, rp? (c) What is the optimal number of banks? (d) What are the profits of the banks at the optimal number of banks? (e) What is the cost to the economy of the optimal banking system and the equilibrium banking system (The sum of the set up costs and the transportation costs) ?