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FE · 4% of the exam

Economics practice questions

10 free Economics questions for the FE Chemical Exam (FE) exam, each with the correct answer and an explanation for every option.

Start the questionsFree 10-question FE quiz

What this domain covers

Engineering economics: time value of money, comparing alternatives, depreciation and cost estimation.

Exam weight
4%
On a real exam
≈ 4 questions
In our bank
24 questions

Topics that come up most

  • Interest factors and cash flow diagrams
  • Present worth, annual worth and rate of return
  • Break-even and benefit-cost analysis
  • Depreciation methods
  • Capital and operating cost estimation

How to study it

Draw a cash flow diagram before choosing an interest factor from the Handbook tables; most errors come from timing the cash flows wrongly.

Sample Economics questions

Try each one before opening the answer. Original questions written to the official exam objectives.

  1. Question 1

    In a project cash-flow analysis, working capital is typically:

    • ADepreciated straight-line
    • BInvested at startup and recovered at the end of the project
    • CNever recovered
    • DCounted as annual revenue
    Show answer and explanation

    Answer: B) Invested at startup and recovered at the end of the project

    • AIncorrect. It's recovered, not depreciated.
    • BCorrect. It isn't depreciated.
    • CIncorrect. It's recovered at the end.
    • DIncorrect. It's an investment.

  2. Question 2

    A unit has capital recovery of $16,000 per year and operating costs of $5,000 per year. Its equivalent annual cost is:

    • A$11,000
    • B$21,000
    • C$16,000
    • D$80,000
    Show answer and explanation

    Answer: B) $21,000

    • AIncorrect. Add, don't subtract.
    • BCorrect. Sum the annualized capital and operating costs.
    • CIncorrect. Include operating costs.
    • DIncorrect. Add, don't multiply.

  3. Question 3

    A unit uses 1,000 kg/h of steam at $20 per tonne for 8,000 h/yr. The annual steam cost is:

    • A$160,000
    • B$16,000
    • C$160,000,000
    • D$20,000
    Show answer and explanation

    Answer: A) $160,000

    • ACorrect. 1 t/h × $20 × 8,000 h.
    • BIncorrect. Recheck the hours.
    • CIncorrect. Convert kg to tonnes.
    • DIncorrect. Multiply by 8,000 h.

  4. Question 4

    A product has fixed costs of $100,000 per year. It sells for $50 per unit, and its variable cost is $30 per unit. What is the break-even production volume?

    • A1,250 units/yr
    • B2,000 units/yr
    • C3,333 units/yr
    • D5,000 units/yr
    Show answer and explanation

    Answer: D) 5,000 units/yr

    At break-even, the contribution margin covers the fixed costs: Q = FC/(P − VC) = 100,000/20 = 5,000 units per year.

    • AIncorrect. This divides fixed costs by price plus variable cost (100,000/80). Variable cost should be subtracted from price, not added to it.
    • BIncorrect. This divides fixed costs by the price alone (100,000/50). It ignores the variable cost of each unit, so not all of the price goes toward covering fixed costs.
    • CIncorrect. This divides fixed costs by the variable cost (100,000/30). The divisor should be the contribution margin per unit, which is price minus variable cost.
    • DCorrect. Break-even volume = fixed cost / (price − variable cost) = 100,000/(50 − 30) = 5,000 units/yr.

  5. Question 5

    Equipment costs $100,000, has a $20,000 salvage value and an 8-year life. Straight-line depreciation per year is:

    • A$12,500
    • B$10,000
    • C$15,000
    • D$2,500
    Show answer and explanation

    Answer: B) $10,000

    Straight-line depreciation subtracts salvage value from cost and divides the result evenly over the useful life: (100,000 − 20,000)/8 = $10,000 per year.

    • AIncorrect. $100,000 ÷ 8 ignores the salvage value, which must be subtracted from the cost before dividing by the life.
    • BCorrect. (Cost − salvage) ÷ life = (100,000 − 20,000) ÷ 8 = $10,000 per year.
    • CIncorrect. This adds the salvage value to the cost ((100,000 + 20,000) ÷ 8) instead of subtracting it.
    • DIncorrect. $20,000 ÷ 8 divides only the salvage value, not the depreciable amount.

  6. Question 6

    A nominal 12% annual rate compounded monthly gives an effective annual rate of about:

    • A144%
    • B12%, the nominal rate
    • C1%, the monthly rate
    • D12.68%
    Show answer and explanation

    Answer: D) 12.68%

    • AIncorrect. That multiplies by 12.
    • BIncorrect. Monthly compounding raises it.
    • CIncorrect. That's per month.
    • DCorrect. \((1.01)^{12} - 1\).

  7. Question 7

    A $200,000 investment yields $50,000 per year in net profit. The simple return on investment is:

    • A25%
    • B4%
    • C40%
    • D250%
    Show answer and explanation

    Answer: A) 25%

    • ACorrect. 50,000/200,000.
    • BIncorrect. That's the payback period, 4 years.
    • CIncorrect. Recheck the division.
    • DIncorrect. Recheck the division.

  8. Question 8

    In an engineering economic decision, sunk costs should be:

    • AAdded to every alternative's future costs
    • BIgnored
    • CRecovered through higher prices first
    • DTreated as future savings
    Show answer and explanation

    Answer: B) Ignored

    • AIncorrect. They don't differ between alternatives.
    • BCorrect. They can't be recovered by any choice.
    • CIncorrect. Past costs don't drive decisions.
    • DIncorrect. They're already spent.

  9. Question 9

    A project's internal rate of return is the interest rate at which:

    • ACosts are lowest
    • BThe payback period is one year
    • CNet present worth equals zero
    • DInflation is zero
    Show answer and explanation

    Answer: C) Net present worth equals zero

    • AIncorrect. That isn't the definition.
    • BIncorrect. That isn't the definition.
    • CCorrect. Compare it with the MARR.
    • DIncorrect. That isn't the definition.

  10. Question 10

    A $300,000 project saves $100,000 per year. Ignoring interest, its payback period is:

    • A0.33 years
    • B3 years
    • C30 years
    • D2 years
    Show answer and explanation

    Answer: B) 3 years

    • AIncorrect. That's inverted.
    • BCorrect. 300,000/100,000.
    • CIncorrect. Recheck the division.
    • DIncorrect. Recheck the division.

Economics: FAQs

How much of the FE exam is Economics?

Economics is 4% of the FE exam by the official exam guide's weighting, which on a 110-question form works out to roughly 4 questions. The real exam's exact split varies by form.

What does the Economics domain cover?

Engineering economics: time value of money, comparing alternatives, depreciation and cost estimation.

How should I study Economics for FE?

Draw a cash flow diagram before choosing an interest factor from the Handbook tables; most errors come from timing the cash flows wrongly.

Where can I practise more Economics questions?

This page has 10 free Economics questions with answers. The ExamWize FE question bank has 24 questions in this domain. Every practice exam result breaks your score down by domain, and Review Mode re-drills the questions you missed.

Other FE topics

Also: 15 free questions across all topics, the FE cheat sheet and the study guide.

Get Economics exam-ready

The full FE bank has 24 Economics questions. Timed practice exams match the real exam's length and domain weights, every result shows your score per domain, and Review Mode re-drills the questions you missed.

See the full FE practice examsTake the free diagnostic

Not affiliated with NCEES; questions are original, written from the official exam outline, and never copied from the real exam.