INDUSTRIAL MANAGEMENT ENGINEERING SOCIETY

ECONOMY REVIEWER – Quiz 2

1. The time period during which some inputs are fixed.

a. Short term
b. Long term
c. Marginal term
d. Five years

2. This is the concept used to describe how larger production runs make average costs go
down.
a. Average costs
b. Average fixed costs
c. economies of scale
d. learning curves

3. The time period during which the firm can increase or decrease all inputs.
a. Short term
b. Long term
c. Marginal term
d. Five years

4. This type of cost does not vary with output.

a. average costs
b. average fixed costs
c. fixed costs
d. total costs
e. variable costs

5. The change in total cost divided by output

a. average costs d. total costs
b. marginal costs e. variable costs
c. fixed costs

6. Short run average cost curves eventually are upward sloping due to ______.
a. higher marginal costs
b. diseconomies of scale
c. law of diminishing returns
d. A and B

7. Suppose that the first four units of a variable input generate corresponding total outputs of
200, 350, 450 and 500 respectively, the marginal product of the second input is
a. 50
b. 100
c. 150
d. 200
e. 350

8. Total cost divided by the quantity of output produced.

a. average costs c. fixed costs e. variable costs
b. marginal costs d. total costs

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 INDUSTRIAL MANAGEMENT ENGINEERING SOCIETY
ECONOMY REVIEWER – Quiz 2

9. If an increase in output results in a decrease in average cost, the corresponding marginal

cost is
a. less than average cost
b. equal to the average cost
c. infinite
d. greater than average cost
e. negative

10. The slope of an average cost curve exhibiting diseconomies of scale is

a. zero
b. infinite
c. positive
d. negative
e. flat

11. If you know that you will lose more money per unit if you produce and sell them, it is better to:
a. underuse the production facility than overuse price-based revenues
b. reduce production to zero
c. increase production to higher prices
d. decrease factory usage
e. increase price per unit sold

12. As a firm moves to higher isoquants:

a. output is reduced
b. cost is reduced
c. profit is maximized
d. output is increased
e. cost is increased

13. If the price of labor increases relative to the price of capital, then a firm will:
a. produce more output
b. use more labor and less capital
c. increase profit
d. produces less output
e. use less labor and more capital

14. A firm earns no profit but must continue operating if which of the following conditions hold
about price P of the firm’s product?
a. P > AC c. P < AVC e. P < MC
b. P = AC d. AVC < P < AC

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 INDUSTRIAL MANAGEMENT ENGINEERING SOCIETY
ECONOMY REVIEWER – Quiz 2

For the next 4 questions, consider the following production function table:

NO. OF WORKERS THOUSANDS OF

PANDSEAL
0 0
1 5
2 15
3 30
4 42
5 51
6 57
7 60
8 60
9 57
10 54

15. The marginal product of the 5 th worker is

a. 5 c. 10 e. 15
b. 9 d. 12

16. The average product of 5 workers is

a. 5 c. 10 e. 15
b. 9 d. 12

17. The end of the first stage of production and the beginning of the 2 nd stage occurs
a. between the 3rd and 4th worker d. between the 6th and 7th worker
th th
b. between the 4 and 5 worker e. between the 7th and 8th worker
th th
c. between the 5 and 6 worker

18. The third stage of production begins

a. between the 3rd and 4th worker
b. between the 4th and 5th worker
c. between the 5th and 6th worker
d. between the 6th and 7th worker
e. between the 7th and 8th worker

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 INDUSTRIAL MANAGEMENT ENGINEERING SOCIETY
ECONOMY REVIEWER for Quiz 2

Consider the little production shop that produces X, Y and Z. The production times and sequencing are shown
on the diagram below. Other pertinent information is shown hereunder concerning products and raw materials:

Product Selling Price Weekly Demand Raw Material Cost per unit
X P 50 / unit 300 units RM1 P 20
Y P 60 / unit 200 units RM2 P 25
Z P 75 / unit 150 units

Workcenter 1 is available for 40 hours per week. Workcenter 2 has 80 workhours available each week and
Workcenter 3 has 6000 mins per week. Total Weekly Fixed Cost = P 11,000

Workcenter Workcenter Workcenter

1 2 3

RM1
5 mins 12 mins 7 mins Product X

RM2
10 mins 8 mins Product X

RM3
5 mins 10 mins Product X

19. Which workcenter is the bottleneck?

a. WC1
b. WC2
c. WC3
d. There is no bottleneck.

20. In the highest profit production weekly schedule, the number of units of X should be
a. 33
b. 300
c. 253
d. 233
e. none of the above

21. In the highest profit production weekly schedule, the number of units of Y should be
a. 200
b. 120
c. 150
d. 0
e. none of the above

22. In the highest profit production weekly schedule, the number of units of Z should be
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 INDUSTRIAL MANAGEMENT ENGINEERING SOCIETY
ECONOMY REVIEWER for Quiz 2
a. 0
b. 100
c. 150
d. 53
e. none of the above

23. The highest weekly profit possible is

a. 10750
b. 10490
c. 4750
d. negative 800 (loss)
e. none of the above

The demand equation for Widgets can be assumed to be P = 1350 - , where P is the price per unit and Q is
the integer number of Widgets sold. The factor for Widgets has annual fixed costs amounting to P11,200,000.
Each Widget has a manufacturing cost of P750.

24. How many Widgets should be sold to maximize total revenue?

a. 45,000
b. 26,426
c. 675
d. 1,050
e. None of the above

25. What is the maximum total revenue possible?

a. P68,343,750
b. P23,760,500
c. P45,225,000
d. P27,947,130.40
e. None of the above

26. At what price would the profit be maximized?

a. 45,000
b. 26,426
c. 675
d. 1,050
e. None of the above

27. What is the maximum total profit possible?

a. P68,343,750
b. P2,300,000
c. P45,225,000
d. P2,747,130.40
e. None of the above

28. Which of the following should be the minimum number of Widgets sold in order to breakeven?
a. 455
b. 41,508
c. 26,426
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 INDUSTRIAL MANAGEMENT ENGINEERING SOCIETY
ECONOMY REVIEWER for Quiz 2
d. 63,574
e. None of the above

29. Which of the following quantities sold would result in a loss (or negative total profit)?
a. 455
b. 41,508
c. 26,426
d. 63,574
e. 52,563

A farmer can plant either rice or squash on his land. Each rice plant requires 3 square meters of land and 20
gallons of water to grow to harvest. Each squash requires 5 square meters of land and 15 gallons of water.
Rice plants require a total of 5 hours to till, while squash plants take only 3 hours. Suppose that the farmer in
question has only 6000 gallons of water, 1500 sqm of land and 1500 labor hours available to till the land.

30. If each rice plant could provide a harvest profit of P25 and each squash plant P10, how
many rice and squash should the farmer plant to maximize profit?
a. 300 rice, 0 squash
b. 300 squash, 0 rice
c. 136 rice, 218 squash
d. 187 rice, 187 squash
e. none of the above

31. If the per plant profit for rice and squash are P25 and P10 respectively, what is the highest possible profit?
a. 5400
b. 6545
c. 7500
d. 7760
e. None of the above

32. If the marginal cost is less than average cost, then

a. average cost is increasing
b. average cost is unchanged
c. marginal cost is decreasing
d. average cost is decreasing
e. marginal cost is increasing

ANSWERS:

1. A
2. C
3. B
4. C
5. B
6. D
7. C
8. A
9. A
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 INDUSTRIAL MANAGEMENT ENGINEERING SOCIETY
ECONOMY REVIEWER for Quiz 2
10. C
11. B
12. D
13. E
14. D
15. B
16. C
17. B
18. E
19. B
20. D
21. A
22. C
23. B
24. E
25. A
26. D
27. B
28. C
29. A
30. A
31. C
32. D