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Production Economics — Agriculture Economics Reviewer Questions

14 board-style Production Economics items for the Agriculturist Licensure Examination, free and open to every examinee. Fixed versus variable, average versus marginal, and cost versus return are the distinctions most items are built on. Get those clean first.

14 questions in this topic · part of Agriculture Economics · every answer explained

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Sample Production Economics questions with answers and explanations

Board-style items taken from the Agriculture Economics bank. Every answer is explained, which is the part that makes a review question worth doing twice.

  1. Applying 40 kg N/ha gives 4,200 kg of palay; raising it to 60 kg N/ha gives 4,800 kg. What is the marginal physical product of the extra nitrogen?

    • A. 80 kg palay per kg N
    • B. 600 kg palay per kg N
    • C. 30 kg palay per kg N correct
    • D. 20 kg palay per kg N

    Why: MPP = change in output / change in input = (4,800 - 4,200) / (60 - 40) = 600 / 20 = 30 kg per kg N. Dividing total output by total input (4,800/60 = 80) gives the AVERAGE product, which cannot tell you whether the last unit of nitrogen paid for itself.

  2. Palay sells at PHP 20/kg and nitrogen costs PHP 60/kg. At the margin an extra kg of N yields 30 kg of palay. What should the farmer do?

    • A. Apply less nitrogen, because input cost exceeds MVP
    • B. Hold the rate, because MVP equals input cost exactly
    • C. Nothing can be decided without knowing fixed costs
    • D. Apply more nitrogen, because MVP exceeds input cost correct

    Why: Marginal value product = 30 kg x PHP 20 = PHP 600, against a marginal factor cost of PHP 60. Every additional peso spent returns ten, so the rate is well below the profit-maximising point where MVP = MFC. Fixed costs are irrelevant to a marginal decision.

  3. A farm's total product rises from 100 to 130 sacks when labour goes from 8 to 10 man-days, and from 130 to 145 sacks when labour goes from 10 to 12. What stage of production is the farm entering?

    • A. Stage II, where marginal product is falling but still positive correct
    • B. Stage I, where marginal product is still rising
    • C. Stage III, where marginal product has turned negative
    • D. Stage I, because total product is still increasing

    Why: MPP falls from 15 to 7.5 sacks per man-day but stays positive, which is Stage II -- the only rational stage to operate in. Total product rising is true in Stage I as well, so it does not identify the stage; the BEHAVIOUR OF THE MARGIN does.

  4. Fixed costs are PHP 30,000, variable cost is PHP 8 per kg, and output sells at PHP 20 per kg. What is the break-even output?

    • A. 1,500 kg
    • B. 2,500 kg correct
    • C. 3,750 kg
    • D. 1,071 kg

    Why: Break-even = fixed cost / (price - variable cost per unit) = 30,000 / (20 - 8) = 30,000 / 12 = 2,500 kg. Dividing by price alone (1,500 kg) ignores that each unit also incurs a variable cost, and understates the volume needed to cover the fixed burden.

  5. Using the same figures -- fixed cost PHP 30,000, variable cost PHP 8/kg, price PHP 20/kg -- what output is needed to earn a profit of PHP 18,000?

    • A. 2,500 kg
    • B. 6,000 kg
    • C. 4,000 kg correct
    • D. 2,400 kg

    Why: Required output = (fixed cost + target profit) / contribution margin = (30,000 + 18,000) / 12 = 4,000 kg. The contribution margin of PHP 12 per kg is what pays down fixed costs first and becomes profit only after break-even is passed.

  6. A farmer can produce 60 sacks of corn or 40 sacks of soybean on the same hectare. What is the opportunity cost of one sack of soybean?

    • A. 0.67 sacks of corn
    • B. 20 sacks of corn
    • C. 40 sacks of corn
    • D. 1.5 sacks of corn correct

    Why: Giving up all soybean yields 60 corn, so 40 soybean costs 60 corn: 60/40 = 1.5 sacks of corn per sack of soybean. Inverting the ratio (0.67) gives the opportunity cost of CORN in terms of soybean, which is the other question.

  7. Two inputs can substitute. Input X costs PHP 50/unit with MPP 25, input Y costs PHP 30/unit with MPP 12. How should the mix change?

    • A. Use more X and less Y, because X returns more output per peso correct
    • B. Use more Y and less X, because Y is cheaper per unit
    • C. The mix is already least-cost, because MPPs differ
    • D. Nothing can be decided without the output price

    Why: Compare MPP per peso: X gives 25/50 = 0.50 units per peso; Y gives 12/30 = 0.40. Shifting spending toward X raises output at the same cost until the ratios equalise. Unit price alone is not the criterion -- a cheaper input that produces proportionally less is the dearer choice.

  8. A farm's total cost is PHP 120,000 at 4,000 kg and PHP 138,000 at 5,000 kg. What is the marginal cost over this range?

    • A. PHP 30 per kg
    • B. PHP 18 per kg correct
    • C. PHP 27.60 per kg
    • D. PHP 138 per kg

    Why: MC = change in total cost / change in output = 18,000 / 1,000 = PHP 18 per kg. Average total cost at 5,000 kg is 138,000/5,000 = PHP 27.60, a different figure entirely; only marginal cost answers whether the NEXT kilogram is worth producing.

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