Answered: A bank has two types of branches. A…

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter1: Introduction And Goals Of The Firm

Section: Chapter Questions

Problem 7E

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Question

A bank has two types of branches. A satellite branch employs 3 people, requires $400,000 to construct and open, and generates an average daily revenue of $10,000. A full-service branch employs 6 people, requires $560,000 to construct and open, and generates an average daily revenue of $18,000. The bank has up to $11.92 million available to open new branches and has decided to limit the new branches to a maximum of 25 and to hire at most 120 new employees.

(a) How many branches of each type should the bank open to maximize the average daily revenue? Find the maximum average daily revenue.

satellite branches = ?
full-service branches = ?
maximum revenue = $?

(b) At the optimal solution from part (a), analyze the bank's constraints (number of new branches, number of new employees, and budget) to determine the "Amount Available," "Amount Used," and "Amount Not Used (Slack)."

branches
possible = ?
used = ?
not used = ?

employees
possible = ?
used = ?
not used = ?

budget
possible = $? million
used = $? million
not used = $? million

(c) Obtaining additional quantities of which constraint items would have the potential to increase the bank's average daily revenue? Explain. (Multiple Choice)

A. Additional budget alone would increase revenue as only this constraint met optimal value.
B. Additional branches and new employees would increase revenue as those two constraint were completely used in optimal condition.
C. Additional branches alone would increase revenue as only this constraint met optimal value.
D. Additional new employees alone would increase revenue as only this constraint met optimal value.
E. Additional branches and budget would increase revenue as those two constraint were completely used in optimal condition.
F. Additional budget and new employees would increase revenue as those two constraint were completely used in optimal condition.

(d) Obtaining more of which constraint item would not increase average daily revenue? Explain. (Multiple Choice)

A. Adding additional budget or employees would have only increased the amount of existing slack for each.
B. Adding additional branches would have only increased the amount of existing slack.
C. Adding additional branches or employees would have only increased the amount of existing slack for each.
D. Adding additional branches or budget would have only increased the amount of existing slack for each.
E. Adding additional budget would have only increased the amount of existing slack.
F. Adding additional new employees would have only increased the amount of existing slack.

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