Solution Manual c
Foundations of Business 7th Edition
c c c c c
by William M. Pride, All chapter 1 - 47
c c c c c c c c c
,Chapter1 c
End of Chapter Questions
c c c
Quiz Yourselfc
1. Scarcity implies that the allocation decision chosen by society can
c c c c c c c c c
a) not make more of any one good. c c c c c c
b) always make more of any good. c c c c c
c) typically make more of one good but at the expense of making less of c c c c c c c c c c c c c
another. c
d) always make more of all goods simultaneously. c c c c c c
c Explanation: Scarcity implies that choices involve trade-offs.
c c c c c c
AACSB: Reflective Thinking c c
Accessibility:KeyboardNavigation
c c c
Blooms: Understand
c c
Difficulty: 02 Medium c c
Gradeable: automatic
c c
LearningObjective:01-01
c c c
Topic: Economics and Opportunity Cost
c c c c
2. A production possibilities frontier is a simple model of
c c c c c c c c
a) allocating scarce inputs to the production of alternative outputs. c c c c c c c c
a) price and production/consumption in a market.c c c c c
b) the cost of producing goods. c c c c
c) the number of inputs required to produce varying levels of output. Explanation:
c c c c c c c c c c c
The production possibilities frontier shows the quantity of two goods that can be produced.
c c c c c c c c c c c c c c
It implies that scarcity requires that choices be made as to how to use resources.
c c c c c c c c c c c c c c c
AACSB: Reflective Thinking c c
Accessibility:KeyboardNavigation
c c c
Blooms: Understand
c c
Difficulty: 02 Medium c c
Gradeable: automatic
c c
LearningObjective:01-01
c c c
Topic: Modeling Opportunity Cost Using the Production Possibilities Frontier
c c c c c c c c
,3. The underlying reason that there are unattainable points on a production possibilities
c c c c c c c c c c c
frontier is that there
c c c c
a. is government. c
b. are always choices that must be made. c c c c c c
c. are scarce resources within a fixed level of technology. c c c c c c c c
d. is unemployment of resources. c c c
Explanation: The points outside the production possibilities frontier are unattainable. This
c c c c c c c c c c
means that currently available resources and technology are insufficient to produce amounts
c c c c c c c c c c c c
greater than those illustrated on the frontier. On a graph, everything beyond the frontier is
c c c c c c c c c c c c c c c
unattainable.
c
AACSB: Reflective Thinking c c
Accessibility:KeyboardNavigation
c c c
Blooms: Remember
c c
Difficulty: 01 Easy Gradeable: c c c
automatic LearningObjective:
c c c
01-01
c
Topic: Modeling Opportunity Cost Using the Production Possibilities Frontier
c c c c c c c c
4. The underlying reason production possibilities frontiers are likely to be bowed out
c c c c c c c c c c c
(rather than linear) is because
c c c c c
a. choices have consequences. c c
b. there are always opportunity costs. c c c c
c. some resources and people can be better used producing one good rather c c c c c c c c c c c
than another. c c
d. there is always some level of unemployment. c c c c c c
Explanation: If the production possibilities frontier is not a line but is bowed out away from
c c c c c c c c c c c c c c c
the origin, then opportunity cost is increasing. The reason for this is that as we add more
c c c c c c c c c c c c c c c c c
resources to the production of, for example, pizza, we are using fewer resources to produce
c c c c c c c c c c c c c c c
soda. Compounding that problem, at each stage as we take the resources away from soda and
c c c c c c c c c c c c c c c c
put them into pizza, we are moving workers who are worse at pizza production and better at
c c c c c c c c c c c c c c c c c
soda production than those moved in the previous stage. This means that the increase in pizza
c c c c c c c c c c c c c c c c
production is diminishing and the loss in soda production is increasing. An economist would
c c c c c c c c c c c c c c
call this an example of increasing opportunity cost. If the production possibilities frontier is a
c c c c c c c c c c c c c c c
straight line that is not bowed out away from the origin, then opportunity cost is constant.
c c c c c c c c c c c c c c c c
AACSB: Knowledge Application c c
Accessibility:KeyboardNavigation
c c c
Blooms: Remember
c c
Difficulty: 01 Easy Gradeable: c c c
automatic LearningObjective:
c c c
01-02
c
Topic: Attributes of the Production Possibilities Frontier
c c c c c c
, 5. Suppose you were modeling the impact of the introduction of computer automation into
c c c c c c c c c c c c
manufacturing on a production possibilities frontier (PPF) with two manufactured goods
c c c c c c c c c c c
on their respective axes. It would be more likely that the result would be
c c c . c c c c c c c c c c c c
a) generalized growth with the PPF moving both up and to the right. c c c c c c c c c c c
b) specialized growth with the PPF moving both up and to the right. c c c c c c c c c c c
c) generalized growth with the PPF just moving up and not to the right. c c c c c c c c c c c c
d) specialized growth with the PPF just moving up and not to the right. Explanation: c c c c c c c c c c c c c
Computer automation is a general improvement in technology so it would improve all
c c c c c c c c c c c c c
manufacturing. As a result, it would result in generalized growth and move the PPF both up
c c c c c c c c c c c c c c c c
and to the right.
c c c c
AACSB: Knowledge Application c c
Accessibility:KeyboardNavigation
c c c
Blooms: Remember
c c
Difficulty: 01 Easy Gradeable: c c c
automatic LearningObjective:
c c c
01-03 Topic: Economic
c c c
Growth
c
6. The optimization assumption suggests that people make
c c c c c c
a. irrational decisions. c
b. unpredictable decisions. c
c. decisions to make themselves as well off as possible. c c c c c c c c
d. decisions without thinking very hard. c c c c
Explanation: The optimization assumption suggests that the person in question is trying to
c c c c c c c c c c c c
maximize some objective. Consumers are assumed to be making decisions that maximize
c c c c c c c c c c c c
their happiness subject to a scarce amount of money.
c c c c c c c c c
AACSB: Reflective Thinking c c
Accessibility:KeyboardNavigation
c c c
Blooms: Remember
c c
Difficulty: 01 Easy Gradeable: c c c
automatic LearningObjective:
c c c
01-01
c
Topic: Thinking Economically
c c
Foundations of Business 7th Edition
c c c c c
by William M. Pride, All chapter 1 - 47
c c c c c c c c c
,Chapter1 c
End of Chapter Questions
c c c
Quiz Yourselfc
1. Scarcity implies that the allocation decision chosen by society can
c c c c c c c c c
a) not make more of any one good. c c c c c c
b) always make more of any good. c c c c c
c) typically make more of one good but at the expense of making less of c c c c c c c c c c c c c
another. c
d) always make more of all goods simultaneously. c c c c c c
c Explanation: Scarcity implies that choices involve trade-offs.
c c c c c c
AACSB: Reflective Thinking c c
Accessibility:KeyboardNavigation
c c c
Blooms: Understand
c c
Difficulty: 02 Medium c c
Gradeable: automatic
c c
LearningObjective:01-01
c c c
Topic: Economics and Opportunity Cost
c c c c
2. A production possibilities frontier is a simple model of
c c c c c c c c
a) allocating scarce inputs to the production of alternative outputs. c c c c c c c c
a) price and production/consumption in a market.c c c c c
b) the cost of producing goods. c c c c
c) the number of inputs required to produce varying levels of output. Explanation:
c c c c c c c c c c c
The production possibilities frontier shows the quantity of two goods that can be produced.
c c c c c c c c c c c c c c
It implies that scarcity requires that choices be made as to how to use resources.
c c c c c c c c c c c c c c c
AACSB: Reflective Thinking c c
Accessibility:KeyboardNavigation
c c c
Blooms: Understand
c c
Difficulty: 02 Medium c c
Gradeable: automatic
c c
LearningObjective:01-01
c c c
Topic: Modeling Opportunity Cost Using the Production Possibilities Frontier
c c c c c c c c
,3. The underlying reason that there are unattainable points on a production possibilities
c c c c c c c c c c c
frontier is that there
c c c c
a. is government. c
b. are always choices that must be made. c c c c c c
c. are scarce resources within a fixed level of technology. c c c c c c c c
d. is unemployment of resources. c c c
Explanation: The points outside the production possibilities frontier are unattainable. This
c c c c c c c c c c
means that currently available resources and technology are insufficient to produce amounts
c c c c c c c c c c c c
greater than those illustrated on the frontier. On a graph, everything beyond the frontier is
c c c c c c c c c c c c c c c
unattainable.
c
AACSB: Reflective Thinking c c
Accessibility:KeyboardNavigation
c c c
Blooms: Remember
c c
Difficulty: 01 Easy Gradeable: c c c
automatic LearningObjective:
c c c
01-01
c
Topic: Modeling Opportunity Cost Using the Production Possibilities Frontier
c c c c c c c c
4. The underlying reason production possibilities frontiers are likely to be bowed out
c c c c c c c c c c c
(rather than linear) is because
c c c c c
a. choices have consequences. c c
b. there are always opportunity costs. c c c c
c. some resources and people can be better used producing one good rather c c c c c c c c c c c
than another. c c
d. there is always some level of unemployment. c c c c c c
Explanation: If the production possibilities frontier is not a line but is bowed out away from
c c c c c c c c c c c c c c c
the origin, then opportunity cost is increasing. The reason for this is that as we add more
c c c c c c c c c c c c c c c c c
resources to the production of, for example, pizza, we are using fewer resources to produce
c c c c c c c c c c c c c c c
soda. Compounding that problem, at each stage as we take the resources away from soda and
c c c c c c c c c c c c c c c c
put them into pizza, we are moving workers who are worse at pizza production and better at
c c c c c c c c c c c c c c c c c
soda production than those moved in the previous stage. This means that the increase in pizza
c c c c c c c c c c c c c c c c
production is diminishing and the loss in soda production is increasing. An economist would
c c c c c c c c c c c c c c
call this an example of increasing opportunity cost. If the production possibilities frontier is a
c c c c c c c c c c c c c c c
straight line that is not bowed out away from the origin, then opportunity cost is constant.
c c c c c c c c c c c c c c c c
AACSB: Knowledge Application c c
Accessibility:KeyboardNavigation
c c c
Blooms: Remember
c c
Difficulty: 01 Easy Gradeable: c c c
automatic LearningObjective:
c c c
01-02
c
Topic: Attributes of the Production Possibilities Frontier
c c c c c c
, 5. Suppose you were modeling the impact of the introduction of computer automation into
c c c c c c c c c c c c
manufacturing on a production possibilities frontier (PPF) with two manufactured goods
c c c c c c c c c c c
on their respective axes. It would be more likely that the result would be
c c c . c c c c c c c c c c c c
a) generalized growth with the PPF moving both up and to the right. c c c c c c c c c c c
b) specialized growth with the PPF moving both up and to the right. c c c c c c c c c c c
c) generalized growth with the PPF just moving up and not to the right. c c c c c c c c c c c c
d) specialized growth with the PPF just moving up and not to the right. Explanation: c c c c c c c c c c c c c
Computer automation is a general improvement in technology so it would improve all
c c c c c c c c c c c c c
manufacturing. As a result, it would result in generalized growth and move the PPF both up
c c c c c c c c c c c c c c c c
and to the right.
c c c c
AACSB: Knowledge Application c c
Accessibility:KeyboardNavigation
c c c
Blooms: Remember
c c
Difficulty: 01 Easy Gradeable: c c c
automatic LearningObjective:
c c c
01-03 Topic: Economic
c c c
Growth
c
6. The optimization assumption suggests that people make
c c c c c c
a. irrational decisions. c
b. unpredictable decisions. c
c. decisions to make themselves as well off as possible. c c c c c c c c
d. decisions without thinking very hard. c c c c
Explanation: The optimization assumption suggests that the person in question is trying to
c c c c c c c c c c c c
maximize some objective. Consumers are assumed to be making decisions that maximize
c c c c c c c c c c c c
their happiness subject to a scarce amount of money.
c c c c c c c c c
AACSB: Reflective Thinking c c
Accessibility:KeyboardNavigation
c c c
Blooms: Remember
c c
Difficulty: 01 Easy Gradeable: c c c
automatic LearningObjective:
c c c
01-01
c
Topic: Thinking Economically
c c
