Solution Manual for Foundations of Business 7th Edition
by William M. Pride.
,SOLUTION MANUAL FOR
Foundations of Business 7e William M. Pride;
Chapter 1-47
Chapter 1
End of Chapter Questions
Quiz Yourself
1. Scarcity implies that the allocation decision chosen by society can
a) not make more of any one good.
b) al𝑤ays make more of any good.
c) typically make more of one good but at the expense of making less
of another.
d) al𝑤ays make more of all goods simultaneously.
Explanation: Scarcity implies that choices involve trade-
offs.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 02 Medium
Gradeable: automatic
Learning Objective: 01-
01
Topic: Economics and Opportunity Cost
2. A production possibilities frontier is a simple model of
a) allocating scarce inputs to the production of alternative outputs.
a) price and production/consumption in a market.
b) the cost of producing goods.
c) the number of inputs required to produce varying levels of output.
Explanation: The production possibilities frontier sho𝑤s the quantity of t𝑤o goods
that can be produced. It implies that scarcity requires that choices be made as to ho𝑤
to use resources.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 02 Medium
Gradeable: automatic
Learning Objective: 01-
01
Page 1
© MCGRAW HILL LLC. ALL RIGHTS RESERVED. NO REPRODUCTION OR DISTRIBUTION WITHOUT THE PRIOR
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,Topic: Modeling Opportunity Cost Using the Production Possibilities Frontier
Page 2
© MCGRAW HILL LLC. ALL RIGHTS RESERVED. NO REPRODUCTION OR DISTRIBUTION WITHOUT THE PRIOR
WRITTEN CONSENT OF MCGRAW HILL LLC.
, 3. The underlying reason that there are unattainable points on a production
possibilities frontier is that there
a. is government.
b. are al𝑤ays choices that must be made.
c. are scarce resources 𝑤ithin a fixed level of technology.
d. is unemployment of resources.
Explanation: The points outside the production possibilities frontier are unattainable.
This means that currently available resources and technology are insufficient to produce
amounts greater than those illustrated on the frontier. On a graph, everything beyond the
frontier is unattainable.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 01 Easy
Gradeable: automatic
Learning Objective: 01-
01
Topic: Modeling Opportunity Cost Using the Production Possibilities Frontier
4. The underlying reason production possibilities frontiers are likely to be bo𝑤ed
out (rather than linear) is because
a. choices have consequences.
b. there are al𝑤ays opportunity costs.
c. some resources and people can be better used producing one good
rather than another.
d. there is al𝑤ays some level of unemployment.
Explanation: If the production possibilities frontier is not a line but is bo𝑤ed out a𝑤ay
from the origin, then opportunity cost is increasing. The reason for this is that as 𝑤e add
more resources to the production of, for example, pizza, 𝑤e are using fe𝑤er resources to
produce soda. Compounding that problem, at each stage as 𝑤e take the resources a𝑤ay
from soda and put them into pizza, 𝑤e are moving 𝑤orkers 𝑤ho are 𝑤orse at pizza
production and better at soda production than those moved in the previous stage. This
means that the increase in pizza production is diminishing and the loss in soda production
is increasing. An economist 𝑤ould call this an example of increasing opportunity cost. If
the production possibilities frontier is a straight line that is not bo𝑤ed out a𝑤ay from the
origin, then opportunity cost is constant.
AACSB: Kno𝑤ledge Application
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 01 Easy
Gradeable: automatic
Learning Objective: 01-
02
Topic: Attributes of the Production Possibilities Frontier
Page 3
© MCGRAW HILL LLC. ALL RIGHTS RESERVED. NO REPRODUCTION OR DISTRIBUTION WITHOUT THE PRIOR
WRITTEN CONSENT OF MCGRAW HILL LLC.
by William M. Pride.
,SOLUTION MANUAL FOR
Foundations of Business 7e William M. Pride;
Chapter 1-47
Chapter 1
End of Chapter Questions
Quiz Yourself
1. Scarcity implies that the allocation decision chosen by society can
a) not make more of any one good.
b) al𝑤ays make more of any good.
c) typically make more of one good but at the expense of making less
of another.
d) al𝑤ays make more of all goods simultaneously.
Explanation: Scarcity implies that choices involve trade-
offs.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 02 Medium
Gradeable: automatic
Learning Objective: 01-
01
Topic: Economics and Opportunity Cost
2. A production possibilities frontier is a simple model of
a) allocating scarce inputs to the production of alternative outputs.
a) price and production/consumption in a market.
b) the cost of producing goods.
c) the number of inputs required to produce varying levels of output.
Explanation: The production possibilities frontier sho𝑤s the quantity of t𝑤o goods
that can be produced. It implies that scarcity requires that choices be made as to ho𝑤
to use resources.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 02 Medium
Gradeable: automatic
Learning Objective: 01-
01
Page 1
© MCGRAW HILL LLC. ALL RIGHTS RESERVED. NO REPRODUCTION OR DISTRIBUTION WITHOUT THE PRIOR
WRITTEN CONSENT OF MCGRAW HILL LLC.
,Topic: Modeling Opportunity Cost Using the Production Possibilities Frontier
Page 2
© MCGRAW HILL LLC. ALL RIGHTS RESERVED. NO REPRODUCTION OR DISTRIBUTION WITHOUT THE PRIOR
WRITTEN CONSENT OF MCGRAW HILL LLC.
, 3. The underlying reason that there are unattainable points on a production
possibilities frontier is that there
a. is government.
b. are al𝑤ays choices that must be made.
c. are scarce resources 𝑤ithin a fixed level of technology.
d. is unemployment of resources.
Explanation: The points outside the production possibilities frontier are unattainable.
This means that currently available resources and technology are insufficient to produce
amounts greater than those illustrated on the frontier. On a graph, everything beyond the
frontier is unattainable.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 01 Easy
Gradeable: automatic
Learning Objective: 01-
01
Topic: Modeling Opportunity Cost Using the Production Possibilities Frontier
4. The underlying reason production possibilities frontiers are likely to be bo𝑤ed
out (rather than linear) is because
a. choices have consequences.
b. there are al𝑤ays opportunity costs.
c. some resources and people can be better used producing one good
rather than another.
d. there is al𝑤ays some level of unemployment.
Explanation: If the production possibilities frontier is not a line but is bo𝑤ed out a𝑤ay
from the origin, then opportunity cost is increasing. The reason for this is that as 𝑤e add
more resources to the production of, for example, pizza, 𝑤e are using fe𝑤er resources to
produce soda. Compounding that problem, at each stage as 𝑤e take the resources a𝑤ay
from soda and put them into pizza, 𝑤e are moving 𝑤orkers 𝑤ho are 𝑤orse at pizza
production and better at soda production than those moved in the previous stage. This
means that the increase in pizza production is diminishing and the loss in soda production
is increasing. An economist 𝑤ould call this an example of increasing opportunity cost. If
the production possibilities frontier is a straight line that is not bo𝑤ed out a𝑤ay from the
origin, then opportunity cost is constant.
AACSB: Kno𝑤ledge Application
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 01 Easy
Gradeable: automatic
Learning Objective: 01-
02
Topic: Attributes of the Production Possibilities Frontier
Page 3
© MCGRAW HILL LLC. ALL RIGHTS RESERVED. NO REPRODUCTION OR DISTRIBUTION WITHOUT THE PRIOR
WRITTEN CONSENT OF MCGRAW HILL LLC.
