Question

Mutiple Choice:

A.) At any particular point in time, the output of the economy: A. is fixed because the supplies of capital and labor and the technology are fixed. B. is fixed because the demand for goods and services is fixed. C. varies because the supplies of capital and labor vary. D. varies because the technology for turning capital and labor into goods and services varies.

B.) If a firm with a constant returns to scale production function pays all factors their marginal products, then: A. economic and accounting profits are both zero. B. economic profit is zero and accounting profit is positive. C. economic profit is positive and accounting profit is zero. D. economic and accounting profit are both positive.

Answer 1

Answer A) Option A is correct. At any particular point of time, the output of an economy is fixed the Supply of labour and capital and the technology is fixed. It means that output is directly dependent upon there input such as labour and capital . It is not related to the demand or Supply.

Answer B) Option B is correct. In case the firm has constant returns to scale than with all Factors of production it resulted in Economic profit is zero and accounting profit is positive. As economic profit is an extra profit earned but it is not possible in case of constant returns where it is not possible in case of Accounting profit.