In a study of the first 1000 business school applications submitted to

The study took into account first 1000 applications to univ X. But the last sentence talks about total applicants to univ X.
"However, the study may underestimate the proportion of total applicants to University X who are dishonest, because"

In the first 1000 applications, the study found that 1/5th were dishonest. It is possible that half of the rest of the applicants are dishonest and hence 1/5 may underestimate the proportion of dishonest applicants. (A) explains this and hence complete the passage.

None of the other options are suitable:

b)the study may have considered an applicant dishonest when it was unable to easily verify work experience because a prior employer for which the applicant truly worked had since gone out of business
This leads us to believe that the study may have overestimated the number of dishonest applicants, not underestimated.

c)some applicants who claimed to have possessed only a year or two of additional professional experience than they really had were also dishonest in other parts of their applications
This doesn't change the number of dishonest applicants. Had we been told that those who were honest in their work ex information were dishonest elsewhere, then this would have become a contender.

d)some applicants who claimed over a decade of work experience really possessed such professional history
Doesn't give any explanation for underestimation.

e)the proportion of applicants at University Y who were dishonest on their applications was larger than that of University X
Nothing says that proportion of dishonest applicants has to be the same across all universities.

Answer (A)