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CFA Level 1

Quiz No. 1

Multiple Choice— Select the option that best completes the sentence or provides the answer to the question.

Indifference curves that are convex to the origin reflect:
An increasing marginal rate of substitution A decreasing marginal rate of substitution A constant marginal rate of substitution A negative marginal rate of substitution
The consumer's choice is optimal if his Marginal Rate of Substitution
Is equal to one Equals the ratio of prices in case of interior equilibrium Is zero Equals the product of prices
A firm's production is technologically efficient whenever:
Average total costs are minimized Average variable costs are minimized Marginal costs equal to marginal revenue Costs are minimized for a given output level
Vasya opens up his own economic consulting practice. The fee he charges per hour is $100. In order to start his own business Vasya quit his job which was paying $50,000 per year and cashed in a $10,000 certificate of deposit that would have yielded him 5% interest this year. During the first year, expenses for items such as paper and utilities totaled $5,000. If Vasya provides 1,000 hours of consulting services in his first year, then his economic profit equals:
$44,500 $35,000 $85,000 $94,500
The rate at which a firm can substitute one factor for another while still producing the same level of output is known as the:
Degree of returns to scale Marginal rate of substitution Marginal rate of technical substitution Marginal physical product
Assume that a firm is a price taker in its input markets. If the firm's technology is characterized by diminishing marginal physical product of its variable input in the short run, the firm's short-run:
Marginal cost curve rises as output rises Average cost curve rises as output rises Both a and b are correct None of the above
The value of price elasticity of demand:
Depends on the units that are used to measure quantities Has the same value as the slope of the demand curve Does not depend on the units in which quantity and price are measured None of the above
An investor has $100,000 held in a two-year bank CD earning four percent with weekly compounding. The terms impose a 10 percent penalty for early withdrawal. How much will the investor receives if he redeems the CD after 18 months?
$95,563 $97,502 $106,181 None of the above
When valuing a call option using the binomial model, an increase in the probability that the underlying will go up most likely implies that the current price of the call option:
Increases Remains unchanged Decreases None of the above
A firm increases the number of hours its workers are employed from 7,000 to 8,000, and output increases from 140,000 bushels to 155,000 bushels. The marginal product of an extra hour is
5 10 15 20