# Thread: FREE CFA Level 1 sample questions everyday for December 2010 candidates

1. Q#6 Answer: (A) A tax, whether it is levied on consumer or producers, always results in a decrease in the equilibrium quantity of output.
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Today's question (Questions and answers provided by Elan Guides)

Q#7: Assume that a firm generates \$125 million in total revenue by using \$40 million in labor and materials. The value of the firm’s buildings fell from \$2 million to \$1.8 million during the period. Further, the firm forgoes \$300,000 in interest and normal profit equals \$140,000. The economic profit of this firm is closest to:

A. \$124,360,000.
B. \$82,760,000.
C. \$84,360,000.
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2. Originally Posted by Anshul
Hello All,

I am Anshul from ProAvenues.com and we represent Elan Guides in India. We are providing some of the questions that will be a part of the daily sample questions for Dec 2010 candidates.

There was some confusion with regard to Q2 earlier. We checked with our Elan Guides team and here is our input:

For the purposes of the CFA Program (and in most modern economics texts) the percentage changes in quantity demanded and price, which are required to calculate price elasticity of demand, are calculated based on AVERAGE and not ORIGINAL values in the denominator. If elasticity is calculated in this manner (based on average values) you get the same elasticity value regardless of whether prices move up to a particular level or down to the same level.

Basically, the answer we provided is correct. For more information, you can either refer to the CFA Program curriculum or register on our website to get the free Economics ebook. http://www.elanguides.com/cfa/india

We are also offering June 2011 early bird Ultimate Prep package with a provision to incorporate any changes made by the CFA institute in their curriculum. To know more details and the special discount for Indian students, you can reach us on: 09619 565 006.

Best,
Anshul
I am still a bit confused abt Q#2...can someone please tell me what's the right answer?

3. Originally Posted by Nidhi Taleja
I am still a bit confused abt Q#2...can someone please tell me what's the right answer?
Clarification regarding Q#2....
The original Q was
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Q#2. A good has a price elasticity of demand of 1.2. In response to an increase in price of 30%, quantity demanded will change from 150 units to:

A. 104.24
B. 195.76
C. 96
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We provided the answer as (C). (See the explanation by Shivaramkrishnan Iyer for this)... However, Elan Guides, who is our content partner, differed. As per the above post by Anshul, the CFA exam expects candidates to do this calculation in a certain way and as per that method, the answer is (A).

Team DG and Elan Guides were in discussion regarding which answer is correct and the post by Anshul clears the confusion. While our answer was conceptually correct, we encourage the students to kindly follow the CFA method.

I hope this clears any doubts in the reader's mind.

4. Actually I followed CFA method and arrived at answer A, but Shiva's explanation was more impressive than provided by CFA inst. So I thought that answer may be C.
Anyhow we have to go with CFA inst. method and hence answer should be A.

5. Answer for Q#7 is C
Explanation: (figures all in million dollars)
Total Firm's Revenue - 125
Explicit Cost: labor and materials - 40
Implicit Cost: Depriciatoin of firm’s buildings - (2-1.8 = .2)
Firm's forgoes in interest - 0.3
Normal profit - 0.14
Total Cost = (40+.2+.3+.14 = 40.64)

Economic Profit = 125 - 40.64 = 84.36 million Dollar

6. [QUOTE=optimisticAL;1025]Answer for Q#7 is C
Explanation: (figures all in million dollars)
Total Firm's Revenue - 125
Explicit Cost: labor and materials - 40
Implicit Cost: Depriciatoin of firm

Economic profit = total revenue - opportunity costs = total revenue - (explicit + implicit costs).

In this case, the labor and material cost of \$40 million is the explicit cost. Implicit costs include the \$300,000 in foregone interest, economic depreciation of \$200,000, and normal profit of \$140,000.

Therefore, total implicit costs equal \$640,000 = \$300,000 + \$200,000 + \$140,000 and economic profit is \$125,000,000 - \$40,000,000 - \$640,000 = \$84,360,000.
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Today's question (Questions and answers provided by Elan Guides)

Q#8: Which of the following statements most accurately describes technological and economic efficiency?

A. For a given level of output, the technologically efficient method of production uses the least number of input units, while the economically efficient method entails the lowest possible cost.
B. For a given level of output the technologically efficient method of production uses the least number of labor units, while the economically efficient method uses the least number of capital units.
C. A production method cannot be technologically efficient without being economically efficient at the same time.
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Please let me know if anyone needs explanation on this.
one important point: A technologically efficient production may be or may not be economically efficient but economically efficient production is always technologically efficient.

9. Originally Posted by optimisticAL
Please let me know if anyone needs explanation on this.
one important point: A technologically efficient production may be or may not be economically efficient but economically efficient production is always technologically efficient.
Good explanation

10. Thx anita123.
Are you appearing for L1 this dec?

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