4. Town Bank obtains deposits and issues loans in purely competitive markets where rD = 5 percent and rL = 10 percent. The bank manager has learned from the bank’s research department that the marginal product of deposits is .2.

(a) . Explain what it means for the mar¬ ginal product of deposits to be .2.

(b) . Based on these numbers, does an ad¬ ditional $1 in deposits increase loans by $1? Why or why not?

(c) . Is Town Bank attracting the profit- maximizing amount of deposits? Explain carefully.