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