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