(Papers) ACET Paper June 2015 "CT7 Economics"
Q.1 A firm is producing 100 units of output using L units of labour and K
units of capital where marginal productivity of capital (MPK) equals 4 and
marginal productivity of labour(MPL) equals 10. The prices of capital and labour
are Rs.3 and Rs.5 respectively. To produce the existing output at minimum cost,
the firm should use
A. more of either L or K and less of the other
B. more of K and less of L
C. less of K and more of L
D. more of only labour [1.5]
Q.2 In a two commodity world consider a consumer with a given income,
prices of the commodities are also given. If 1 x (quantity of commodity 1) = 5,
2 x (the quantity of commodity 2) = 7, is a point on the budget line of the
consumer, then which of the following is necessarily true ?
A. x1 = 4, x2 = 6 , is a point in the budget set
B. x1 = 3, x2 = 9, is a point on the budget line.
C. x1 = 5, x2 = 7.5 is a point in the budget set.
D. none of the above. [1.5]
Q.3 Let Q1 be the profit maximizing level of output and Q2 be the revenue
maximizing level of output of a firm. Then Q1 = Q2 , if there is
A. no fixed cost
B. no variable cost
C. constant marginal cost
D. none of the above [1.5]
Q.4 If certainty equivalent for an individual is found to be equal to the
expected value of the pay-off from a gamble, then
A. the individual is risk-neutral
B. the individual is risk lover
C. nothing can be said regarding the individual’s attitude towards risk
D. the individual is risk averter [1.5]
Q.5 Which of the following properties of the utility function describes a
consumer’s attitude towards risk?
D. curvature [1.5]
Q.6 In a two commodity world the prices of the two commodities 1 x and 2 x
are given at Rs.5 and Rs.7 respectively, to a consumer with a given budget.
Suppose the commodities can be purchased and consumed in discrete quantities
only. Each of 1 x and 2 x axis is found to contain a point that fully exhaust
the consumer’s budget. Then, which of the following is true?
A. the consumer’s budget is Rs.130;
B. the consumer’s budget is Rs.150;
C. the consumer’s budget is Rs. 128;
D. the consumer’s budget is Rs. 140.
Q.7 On a downward sloping linear demand curve demand is more elastic
A. at the upper end
B. at the lower end
C. in the middle
D. any one of the above is possible [1.5]
Q.8 In deriving the Hicks substitution effect, the purchasing power of
income is kept constant following a decline in the price of the commodity by
A. keeping the consumer on the same indifference curve
B. relegating the consumer to a lower indifference curve
C. enabling the consumer to purchase the same bundle of goods as before the
D. enabling the consumer to buy more of both the commodities than before the