Managerial Economics and Business Strategy 10th Edition Solution Manual – Michael Baye & Jeff Prince

SOLUTION MANUAL FOR t t




Issues in Economics Today 10th Edition by Robert Guell
t t t t t t t t




Chaptert1-47


Chapter 1 t




End of Chapter Questions
t t t




QuiztYourself

1. Scarcitytimpliestthattthetallocationtdecisiontchosentbytsocietytcan
a) nottmaketmoretoftanytonetgood.
b) alwaystmaketmoretoftanytgood.
c) typicallytmaketmoretoftonetgoodtbuttattthetexpensetoftmakingtlesstoftan
other.
d) alwaystmaketmoretoftalltgoodstsimultaneously.tExplan
ation:tScarcitytimpliestthattchoicestinvolvettrade-offs.

AACSB:tReflectivetThinkingtAccessib
ility:tKeyboardtNavigationtBlooms:tUn
derstand
Difficulty:t02tMediumtGradea
ble:tautomatictLearningtObjec
tive:t01-01
Topic:tEconomicstandtOpportunitytCost

2. Atproductiontpossibilitiestfrontiertistatsimpletmodeltof
a) allocatingtscarcetinputsttotthetproductiontoftalternativetoutputs.
a) pricetandtproduction/consumptiontintatmarket.
b) thetcosttoftproducingtgoods.
c) thetnumbertoftinputstrequiredttotproducetvaryingtlevelstoftoutput.t Explanation:tTh
etproductiontpossibilitiestfrontiertshowstthetquantitytofttwotgoodstthattcantbetproduced.tItti
mpliestthattscarcitytrequirestthattchoicestbetmadetasttothowttotusetresources.

AACSB:tReflectivetThinkingtAccessib
ility:tKeyboardtNavigationtBlooms:tUn
derstand
Difficulty:t02tMediumtGradea
ble:tautomatictLearningtObjec
tive:t01-01
Topic:tModelingtOpportunitytCosttUsingtthetProductiontPossibilitiestFrontier


Paget1
©tMCGRAWtHILLtLLC.tALLtRIGHTStRESERVED.tNOtREPRODUCTIONtORtDISTRIBUTIONtWITHOUTtTHEtPRIORt W
RITTENtCONSENTtOFtMCGRAWtHILLtLLC.

,3. Thetunderlyingtreasontthatttheretaretunattainabletpointstontatproductiontpossibilitiestfro
ntiertistthattthere
a. istgovernment.
b. aretalwaystchoicestthattmusttbetmade.
c. aretscarcetresourcestwithintatfixedtleveltofttechnology.
d. istunemploymenttoftresources.
Explanation:tThetpointstoutsidetthetproductiontpossibilitiestfrontiertaretunattainable.tThistme
anstthattcurrentlytavailabletresourcestandttechnologytaretinsufficientttotproducetamountstgre
atertthantthosetillustratedtontthetfrontier.tOntatgraph,teverythingtbeyondtthetfrontiertistunattai
nable.

AACSB:tReflectivetThinkingtAccessib
ility:tKeyboardtNavigationtBlooms:tRe
member
Difficulty:t01tEasytGradeable:
tautomatict LearningtObjective

:t01-01
Topic:tModelingtOpportunitytCosttUsingtthetProductiontPossibilitiestFrontier

4. Thetunderlyingtreasontproductiontpossibilitiestfrontierstaretlikelyttotbetbowedtoutt(rat
hertthantlinear)tistbecause
a. choicesthavetconsequences.
b. theretaretalwaystopportunitytcosts.
c. sometresourcestandtpeopletcantbetbettertusedtproducingtonetgoodtrathertth
antanother.
d. theretistalwaystsometleveltoftunemployment.
Explanation:tIftthetproductiontpossibilitiestfrontiertistnottatlinetbuttistbowedtouttawaytfromtth
etorigin,tthentopportunitytcosttistincreasing.tThetreasontfortthististthattastwetaddtmoretresource
sttotthetproductiontof,tfortexample,tpizza,twetaretusingtfewertresourcesttotproducetsoda.tCom
poundingtthattproblem,tatteachtstagetastwettaketthetresourcestawaytfromtsodatandtputtthemtint
otpizza,twetaretmovingtworkerstwhotaretworsetattpizzatproductiontandtbettertattsodatproducti
ontthantthosetmovedtintthetpreviouststage.tThistmeanstthattthetincreasetintpizzatproductiontistd
iminishingtandtthetlosstintsodatproductiontistincreasing.tAnteconomisttwouldtcalltthistantexa
mpletoftincreasingtopportunitytcost.tIftthetproductiontpossibilitiestfrontiertistatstraighttlinettha
ttistnottbowedtouttawaytfromtthetorigin,tthentopportunitytcosttistconstant.

AACSB:tKnowledgetApplicationtAcce
ssibility:tKeyboardtNavigationtBlooms:t
Remember
Difficulty:t01tEasytGradeable:
tautomatict LearningtObjective

:t01-02
Topic:tAttributestoftthetProductiontPossibilitiestFrontier




Paget2
©tMCGRAWtHILLtLLC.tALLtRIGHTStRESERVED.tNOtREPRODUCTIONtORtDISTRIBUTIONtWITHOUTtTHEtPRIORt W
RITTENtCONSENTtOFtMCGRAWtHILLtLLC.

,5. Supposetyoutweretmodelingtthetimpacttoftthetintroductiontoftcomputertautomationtinto
tmanufacturingtontatproductiontpossibilitiestfrontiert(PPF)twithttwotmanufacturedtgoodsto

nttheirtrespectivetaxes.tIttwouldtbetmoretlikelytthattthetresulttwouldtbet .
a) generalizedtgrowthtwithtthetPPFtmovingtbothtuptandttotthetright.
b) specializedtgrowthtwithtthetPPFtmovingtbothtuptandttotthetright.
c) generalizedtgrowthtwithtthetPPFtjusttmovingtuptandtnotttotthetright.
d) specializedtgrowthtwithtthetPPFtjusttmovingtuptandtnotttotthetright.tExplanation:tC
omputertautomationtistatgeneraltimprovementtinttechnologytsotittwouldtimprovetalltmanuf
acturing.tAstatresult,tittwouldtresulttintgeneralizedtgrowthtandtmovetthetPPFtbothtuptandttott
hetright.

AACSB:tKnowledgetApplicationtAcce
ssibility:tKeyboardtNavigationtBlooms:t
Remember
Difficulty:t01tEasytGradeable:
tautomatict LearningtObjective

:t01-
03tTopic:tEconomictGrowth

6. Thetoptimizationtassumptiontsuggeststthattpeopletmake
a. irrationaltdecisions.
b. unpredictabletdecisions.
c. decisionsttotmaketthemselvestastwelltofftastpossible.
d. decisionstwithouttthinkingtverythard.
Explanation:tThetoptimizationtassumptiontsuggeststthattthetpersontintquestiontisttryingttotm
aximizetsometobjective.tConsumerstaretassumedttotbetmakingtdecisionstthattmaximizettheir
thappinesstsubjectttotatscarcetamounttoftmoney.




AACSB:tReflectivetThinkingtAccessib
ility:tKeyboardtNavigationtBlooms:tRe
member
Difficulty:t01tEasytGradeable:
tautomatict LearningtObjective

:t01-01
Topic:tThinkingtEconomically

7. Imaginetanteconomisttorderingtdonutstone-by-
one.tWhentdecidingthowtmanytdonutsttotorderttheytwouldtpicktthattnumbertwheretthetenjoym
enttoftthet
equalstthetenjoymentttheytcouldtgettfromtusingtthetmoneytontanothertgood.
a. firsttdonut
b. last/marginaltdonut
c. average/typicaltdonut
d. totaltnumbertoftdonuts
Explanation:tThetenjoymenttoftthetlasttslicetistthetmarginaltbenefittoftthattslice.tIftthistenjoymentti
stmoretthantthetenjoymenttfromtsometalternative,tmoretwilltbetconsumed.

AACSB:tReflectivetThinking
Paget3
©tMCGRAWtHILLtLLC.tALLtRIGHTStRESERVED.tNOtREPRODUCTIONtORtDISTRIBUTIONtWITHOUTtTHEtPRIORt W
RITTENtCONSENTtOFtMCGRAWtHILLtLLC.

, Accessibility:tKeyboardtNavigationtBlo
oms:tUnderstand
Difficulty:t02tMediumtGradeab
le:tautomatict LearningtObjecti
ve:t01-
04tTopic:tThinkingtEconomical
ly

8. Oftcourse,talltindividualtstudentstaretbettertofftifttheytearntbettertgrades.tIftyoutwerettotco
ncludetthattalltstudentstwouldtbetbettertofftifteveryonetreceivedtantA,tyoutwould
a. havetfallentvictimttotthetfallacytoftscarcity.
b. betright.
c. havetfallentvictimttotthetfallacytoftcomposition.
d. betmistakingtcorrelationtwithtcausation.
Explanation:tThetfallacytoftcompositiontistthetmistaketintlogictthattsuggeststthattthettotaltecon
omictimpacttoftsomethingtistalwaystandtsimplytequalttotthetsumtoftthetindividualtparts.

AACSB:tReflectivetThinkingtAccessib
ility:tKeyboardtNavigationtBlooms:tUn
derstand
Difficulty:t02tMediumtGradeab
le:tautomatict LearningtObjecti
ve:t01-
04tTopic:tThinkingtEconomical
ly

9. Imaginetyoutwerettotconclude,taftertcarefullytexaminingtdatatandtusingtpropertevaluatio
nttechniques,tthattattaxtcredittfortattendingtcollegetbenefitstlowtincometearnerstmoretthantatta
xtdeductiont(oftequalttotaltcostttotthetgovernment)twould.tYoutwouldthavetengagedtint
analysisttotreachtthattconclusion.
a. negative
b. positive
c. normative
d. creative
Explanation:tEconomists,tandtsocialtscientiststintgeneral,tdistinguishtviewstoft―thetwaytthing
stare‖tfromt―thetwaytthingstshouldtbe,‖tcallingtthetformertpositivetanalysistandtthetlattertnorm
ativetanalysis.tPositivetanalysististatformtoftanalysistthattseeksttotunderstandtthetwaytthingstar
etandtwhyttheytaretthattway.tNormativetanalysististatformtoftanalysistthattseeksttotunderstandtt
hetwaytthingstshouldtbe.

AACSB:tReflectivetThinkingtAccessib
ility:tKeyboardtNavigationtBlooms:tUn
derstand
Difficulty:t02tMediumtGradeab
le:tautomatict LearningtObjecti
ve:t01-
04tTopic:tThinkingtEconomical
ly
Paget4
©tMCGRAWtHILLtLLC.tALLtRIGHTStRESERVED.tNOtREPRODUCTIONtORtDISTRIBUTIONtWITHOUTtTHEtPRIORt W
RITTENtCONSENTtOFtMCGRAWtHILLtLLC.