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CFA Question & Answer

QUIZ NO. 3

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

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 marginal output rule states that if a firm does not shut down, then it should produce output at a level where:
Marginal revenue equals marginal cost
Marginal revenue equals average cost
Marginal cost equals average revenue
None of the above


Assume the demand curve for compact discs slopes downwards, and the supply curve slopes upwards. If the price of CD players decreases, then:
The equilibrium price of compact discs will fall
The equilibrium price of compact discs will rise
Both are correct
None of the given is correct


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
None of the above


Jonathon's preferences satisfy the non-satiation assumption. This means that he must prefer the bundle consisting of two glasses of orange juice and one sandwich to which of the following bundles?
One glass of orange juice and two sandwiches
Three glasses of orange juice and one sandwiches
One glass of orange juice and one sandwich
None of the above



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
None of the above


Demand for a good is likely to be more elastic:
The smaller the fraction of consumer income absorbed by the good
In the short run than in the long run
The greater the number of available substitutes for the good
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


If a 5% increase in income leads to a 12% increase in the quantity demanded of mobile phones, ceteris paribus, the value of the income elasticity of demand for mobile phones is:
2.4 and mobile phones are a normal good
0.42 and mobile phones are a normal good
2.4 and mobile phones are an inferior good
None of the above


Fred divides his purchases between beer and pizzas. Suppose Fred's budget constraint is graphed with beer on the horizontal axis and pizzas on the vertical axis. If the price of beer is $1.50 per pint, the price of pizzas is $2 each, and Fred's income is $30 per week, then the budget constrain has a slope equal to:
-1.33
-2
-0.75
-1.02