Author Question: New money is created in the U.S. economy by A) increased federal government expenditures. B) ... (Read 114 times)

MirandaLo · **on:** Jun 29, 2018

New money is created in the U.S. economy by

A) increased federal government expenditures.
B) banks that create checkable deposits.
C) the U.S. Treasury.
D) U.S. Department of Mint.
E) the U.S. Congress.

Question 2

Suppose the bobby pin industry is perfectly competitive. The price of a packet of bobby pins is 2.00. Pins and Needles, Inc is a firm in this industry and is producing 1,000 packets of bobby pins per day at the point where the MC = MR.

The average cost of production at this output level is 1.50 per packet. a. What is the marginal cost of the 1,000th packet? b. Is this firm making an economic profit, zero economic profit, or an economic loss? How much? c. Is the firm in long-run equilibrium? Why or why not?

epscape · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

B

Answer to Question 2

a. The price per packet is 2, which is also the Pins and Needles' marginal revenue. The marginal cost of the 1,000th packet is equal to marginal revenue, so for Pins and Needles the marginal cost is 2 per packet.
b. The firm is making a 0.50 economic profit per unit (which equals the price minus the average total cost). Because Pins and Needles produces 1,000 packets, its total economic profit is 500.
c. The firm is making an economic profit, so it is not in long-run equilibrium. In the long run, a perfectly competitive firm cannot make an economic profit. The only outcome possible in the long run is zero economic profit.