Solution Manual b
Foundations of Business 7th Edition
b b b b b
by William M. Pride, All chapter 1 - 47
b b b b b b b b b
,Chapter 1 b
End of Chapter Questions
b b b
Quiz Yourself
b
1. Scarcity implies that the allocation decision chosen by society can
b b b b b b b b b
a) not make more of any one good.
b b b b b b
b) always make more of any good. b b b b b
c) typically make more of one good but at the expense of making less of
b b b b b b b b b b b b b
another.b
d) always make more of all goods simultaneously. b b b b b b
b Explanation: Scarcity implies that choices involve trade-offs.
b b b b b b
AACSB: Reflective Thinking b b
Accessibility: Keyboard Navigation
b b b
Blooms: Understand
b b
Difficulty: 02 Medium b b
Gradeable: automatic
b b
Learning Objective: 01-01
b b b
Topic: Economics and Opportunity Cost
b b b b
2. A production possibilities frontier is a simple model of
b b b b b b b b
a) allocating scarce inputs to the production of alternative outputs. b b b b b b b b
a) price and production/consumption in a market.
b b b b b
b) the cost of producing goods. b b b b
c) the number of inputs required to produce varying levels of output. Explanation:
b b b b b b b b b b b
The production possibilities frontier shows the quantity of two goods that can be
b b b b b b b b b b b b b
produced. It implies that scarcity requires that choices be made as to how to use
b b b b b b b b b b b b b b b
resources.
b
AACSB: Reflective Thinking b b
Accessibility: Keyboard Navigation
b b b
Blooms: Understand
b b
Difficulty: 02 Medium b b
Gradeable: automatic
b b
Learning Objective: 01-01
b b b
Topic: Modeling Opportunity Cost Using the Production Possibilities Frontier
b b b b b b b b
,3. The underlying reason that there are unattainable points on a production possibilities
b b b b b b b b b b b
frontier is that there
b b b b
a. is government. b
b. are always choices that must be made. b b b b b b
c. are scarce resources within a fixed level of technology.
b b b b b b b b
d. is unemployment of resources. b b b
Explanation: The points outside the production possibilities frontier are unattainable. This
b b b b b b b b b b
means that currently available resources and technology are insufficient to produce
b b b b b b b b b b b
amounts greater than those illustrated on the frontier. On a graph, everything beyond the
b b b b b b b b b b b b b b
frontier is unattainable.
b b b
AACSB: Reflective Thinking b b
Accessibility: Keyboard Navigation
b b b
Blooms: Remember
b b
Difficulty: 01 Easy b b
Gradeable: automatic
b b
Learning Objective: 01-01
b b b
Topic: Modeling Opportunity Cost Using the Production Possibilities Frontier
b b b b b b b b
4. The underlying reason production possibilities frontiers are likely to be bowed out
b b b b b b b b b b b
(rather than linear) is because
b b b b b
a. choices have consequences. b b
b. there are always opportunity costs. b b b b
c. some resources and people can be better used producing one good rather
b b b b b b b b b b b
than another. b b
d. there is always some level of unemployment. b b b b b b
Explanation: If the production possibilities frontier is not a line but is bowed out away from
b b b b b b b b b b b b b b b
the origin, then opportunity cost is increasing. The reason for this is that as we add more
b b b b b b b b b b b b b b b b b
resources to the production of, for example, pizza, we are using fewer resources to produce
b b b b b b b b b b b b b b b
soda. Compounding that problem, at each stage as we take the resources away from soda
b b b b b b b b b b b b b b b
and put them into pizza, we are moving workers who are worse at pizza production and
b b b b b b b b b b b b b b b b
better at soda production than those moved in the previous stage. This means that the
b b b b b b b b b b b b b b b
increase in pizza production is diminishing and the loss in soda production is increasing. An
b b b b b b b b b b b b b b b
economist would call this an example of increasing opportunity cost. If the production
b b b b b b b b b b b b b
possibilities frontier is a straight line that is not bowed out away from the origin, then
b b b b b b b b b b b b b b b b
opportunity cost is constant.
b b b b
AACSB: Knowledge Application b b
Accessibility: Keyboard Navigation
b b b
Blooms: Remember
b b
Difficulty: 01 Easy b b
Gradeable: automatic
b b
Learning Objective: 01-02
b b b
Topic: Attributes of the Production Possibilities Frontier
b b b b b b
, 5. Suppose you were modeling the impact of the introduction of computer automation
b b b b b b b b b b b
into manufacturing on a production possibilities frontier (PPF) with two manufactured
b b b b b b b b b b b
goods on their respective axes. It would be more likely that the result would be
b b b b . b b b b b b b b b b b b
a) generalized growth with the PPF moving both up and to the right. b b b b b b b b b b b
b) specialized growth with the PPF moving both up and to the right. b b b b b b b b b b b
c) generalized growth with the PPF just moving up and not to the right. b b b b b b b b b b b b
d) specialized growth with the PPF just moving up and not to the right. Explanation:
b b b b b b b b b b b b b
Computer automation is a general improvement in technology so it would improve all
b b b b b b b b b b b b b
manufacturing. As a result, it would result in generalized growth and move the PPF both
b b b b b b b b b b b b b b b
up and to the right.
b b b b b
AACSB: Knowledge Application b b
Accessibility: Keyboard Navigation
b b b
Blooms: Remember
b b
Difficulty: 01 Easy b b
Gradeable: automatic
b b
Learning Objective: 01-03
b b b
Topic: Economic Growth
b b b
6. The optimization assumption suggests that people make
b b b b b b
a. irrational decisions. b
b. unpredictable decisions. b
c. decisions to make themselves as well off as possible. b b b b b b b b
d. decisions without thinking very hard. b b b b
Explanation: The optimization assumption suggests that the person in question is trying to
b b b b b b b b b b b b
maximize some objective. Consumers are assumed to be making decisions that maximize
b b b b b b b b b b b b
their happiness subject to a scarce amount of money.
b b b b b b b b b
AACSB: Reflective Thinking b b
Accessibility: Keyboard Navigation
b b b
Blooms: Remember
b b
Difficulty: 01 Easy b b
Gradeable: automatic
b b
Learning Objective: 01-01
b b b
Topic: Thinking Economically
b b
Foundations of Business 7th Edition
b b b b b
by William M. Pride, All chapter 1 - 47
b b b b b b b b b
,Chapter 1 b
End of Chapter Questions
b b b
Quiz Yourself
b
1. Scarcity implies that the allocation decision chosen by society can
b b b b b b b b b
a) not make more of any one good.
b b b b b b
b) always make more of any good. b b b b b
c) typically make more of one good but at the expense of making less of
b b b b b b b b b b b b b
another.b
d) always make more of all goods simultaneously. b b b b b b
b Explanation: Scarcity implies that choices involve trade-offs.
b b b b b b
AACSB: Reflective Thinking b b
Accessibility: Keyboard Navigation
b b b
Blooms: Understand
b b
Difficulty: 02 Medium b b
Gradeable: automatic
b b
Learning Objective: 01-01
b b b
Topic: Economics and Opportunity Cost
b b b b
2. A production possibilities frontier is a simple model of
b b b b b b b b
a) allocating scarce inputs to the production of alternative outputs. b b b b b b b b
a) price and production/consumption in a market.
b b b b b
b) the cost of producing goods. b b b b
c) the number of inputs required to produce varying levels of output. Explanation:
b b b b b b b b b b b
The production possibilities frontier shows the quantity of two goods that can be
b b b b b b b b b b b b b
produced. It implies that scarcity requires that choices be made as to how to use
b b b b b b b b b b b b b b b
resources.
b
AACSB: Reflective Thinking b b
Accessibility: Keyboard Navigation
b b b
Blooms: Understand
b b
Difficulty: 02 Medium b b
Gradeable: automatic
b b
Learning Objective: 01-01
b b b
Topic: Modeling Opportunity Cost Using the Production Possibilities Frontier
b b b b b b b b
,3. The underlying reason that there are unattainable points on a production possibilities
b b b b b b b b b b b
frontier is that there
b b b b
a. is government. b
b. are always choices that must be made. b b b b b b
c. are scarce resources within a fixed level of technology.
b b b b b b b b
d. is unemployment of resources. b b b
Explanation: The points outside the production possibilities frontier are unattainable. This
b b b b b b b b b b
means that currently available resources and technology are insufficient to produce
b b b b b b b b b b b
amounts greater than those illustrated on the frontier. On a graph, everything beyond the
b b b b b b b b b b b b b b
frontier is unattainable.
b b b
AACSB: Reflective Thinking b b
Accessibility: Keyboard Navigation
b b b
Blooms: Remember
b b
Difficulty: 01 Easy b b
Gradeable: automatic
b b
Learning Objective: 01-01
b b b
Topic: Modeling Opportunity Cost Using the Production Possibilities Frontier
b b b b b b b b
4. The underlying reason production possibilities frontiers are likely to be bowed out
b b b b b b b b b b b
(rather than linear) is because
b b b b b
a. choices have consequences. b b
b. there are always opportunity costs. b b b b
c. some resources and people can be better used producing one good rather
b b b b b b b b b b b
than another. b b
d. there is always some level of unemployment. b b b b b b
Explanation: If the production possibilities frontier is not a line but is bowed out away from
b b b b b b b b b b b b b b b
the origin, then opportunity cost is increasing. The reason for this is that as we add more
b b b b b b b b b b b b b b b b b
resources to the production of, for example, pizza, we are using fewer resources to produce
b b b b b b b b b b b b b b b
soda. Compounding that problem, at each stage as we take the resources away from soda
b b b b b b b b b b b b b b b
and put them into pizza, we are moving workers who are worse at pizza production and
b b b b b b b b b b b b b b b b
better at soda production than those moved in the previous stage. This means that the
b b b b b b b b b b b b b b b
increase in pizza production is diminishing and the loss in soda production is increasing. An
b b b b b b b b b b b b b b b
economist would call this an example of increasing opportunity cost. If the production
b b b b b b b b b b b b b
possibilities frontier is a straight line that is not bowed out away from the origin, then
b b b b b b b b b b b b b b b b
opportunity cost is constant.
b b b b
AACSB: Knowledge Application b b
Accessibility: Keyboard Navigation
b b b
Blooms: Remember
b b
Difficulty: 01 Easy b b
Gradeable: automatic
b b
Learning Objective: 01-02
b b b
Topic: Attributes of the Production Possibilities Frontier
b b b b b b
, 5. Suppose you were modeling the impact of the introduction of computer automation
b b b b b b b b b b b
into manufacturing on a production possibilities frontier (PPF) with two manufactured
b b b b b b b b b b b
goods on their respective axes. It would be more likely that the result would be
b b b b . b b b b b b b b b b b b
a) generalized growth with the PPF moving both up and to the right. b b b b b b b b b b b
b) specialized growth with the PPF moving both up and to the right. b b b b b b b b b b b
c) generalized growth with the PPF just moving up and not to the right. b b b b b b b b b b b b
d) specialized growth with the PPF just moving up and not to the right. Explanation:
b b b b b b b b b b b b b
Computer automation is a general improvement in technology so it would improve all
b b b b b b b b b b b b b
manufacturing. As a result, it would result in generalized growth and move the PPF both
b b b b b b b b b b b b b b b
up and to the right.
b b b b b
AACSB: Knowledge Application b b
Accessibility: Keyboard Navigation
b b b
Blooms: Remember
b b
Difficulty: 01 Easy b b
Gradeable: automatic
b b
Learning Objective: 01-03
b b b
Topic: Economic Growth
b b b
6. The optimization assumption suggests that people make
b b b b b b
a. irrational decisions. b
b. unpredictable decisions. b
c. decisions to make themselves as well off as possible. b b b b b b b b
d. decisions without thinking very hard. b b b b
Explanation: The optimization assumption suggests that the person in question is trying to
b b b b b b b b b b b b
maximize some objective. Consumers are assumed to be making decisions that maximize
b b b b b b b b b b b b
their happiness subject to a scarce amount of money.
b b b b b b b b b
AACSB: Reflective Thinking b b
Accessibility: Keyboard Navigation
b b b
Blooms: Remember
b b
Difficulty: 01 Easy b b
Gradeable: automatic
b b
Learning Objective: 01-01
b b b
Topic: Thinking Economically
b b
