Question

1. Which of the following statements about production functions is FALSE?

a. Included in the firm's short-run production function are both fixed and variable inputs

b. Higher amounts of inputs will allow a firm to produce more output

c. The production function shows the technical relationship between a firm's inputs and outputs

d. The relationship between inputs and outputs changes if capital becomes variable in the long run

2. The law of diminishing marginal product is a statement

a. that concerns changes in variable input and changes in output

b. that concerns the long run

c. that concerns changes in profits

d. that relates to plant size

3. True or False: A firm can simultaneously have positive accounting profits and negative economic profits.

a. True

b. False

Answer 1

Q1. c.
Reason:- The production function shows the 'functional' relationship between a firm's inputs and outputs not technical relationship.

Q2. a
Reason :- diminishing returns are present in both short as well as long run. Also, does not concern about the profits buts concerns the returns, which includes cost. Also it has no relation with the plant size. The law of diminishing returns concerns the changes in variable input and changes in output.

Q3. a
Reason:- economic profit = total incomes- total expenses - opportunity cost lost
Whereas,
Accounting profit = total incomes- total expenses

Hence, we can easily conclude that
Accounting profit is a part of economic profits. Hence a firm can obviously have positive accounting profits and negative economic profits. In is possible in the case when opportunity cost is higher than the accounting profit.