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