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