Question: R = [PbPy/2M 2 ];.......................................... (3) It can be seen from equation (3) that R = marginal revenue (MR) and [PbPy/2M 2 = marginal cost

R = [PbPy/2M²];.......................................... (3) It can be seen from equation (3) that R = marginal revenue (MR) and [PbPy/2M²= marginal cost (MC). Graphically, this means that MR will be a straight line (the interest rate is given) and MC will be downward sloping since holding more money decreases the transactions cost. The point at which the two curves intersect will determine the optimal amount of real money holdings [M*/P]. Please draw the graph

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