Managerial Economics & Business Strategy 8th Edition by Michael Baye,Jeff Prince

Exercise 21

From California to New York, legislative bodies across the United States are considering eliminating or reducing the surcharges that banks impose on noncustomers who make $12 million in withdrawals from other banks' ATM machines. On average, noncustomers earn a wage of $24 per hour and pay ATM fees of $3.00 per transaction. It is estimated that banks would be willing to maintain services for 5 million transactions at $1.25 per transaction, while noncustomers would attempt to conduct 19 million transactions at that price. Estimates suggest that, for every 1 million gap between the desired and available transactions, a typical consumer will have to spend an extra minute traveling to another machine to withdraw cash. Based on this information, use a graph to carefully illustrate the impact of legislation that would place a $1.25 cap on the fees banks can charge for noncustomer transactions.