1. Define scarcity. What signifies to managers that a resource used in production is becoming scarce? What impact does this have on management decisions?

2. Define economic profit. Explain how economic profit is different than accounting profit. Why is it important for economists to measure economic profit rather than just sticking to the accounting profit used in accounting and finance?

3. Define opportunity cost. Give an example of a personal decision you made within the past year. What explicit costs were involved? What opportunity costs were involved? Explain how youarrived at your decision. Include the role of opportunity costs in your explanation and describecriteria you used to evaluate your options.

4. When analyzing decisions that are made within a firm, economists typically assume that “profit maximization” is the firm’s main goal. However, a number of other goals are also possible. Choose one of the “other” possible goals and compare it to “profit maximization.” Under what circumstances might the “other” goal that you described become a major focus for the firm? If you were the CEO of a large firm, what steps might you take to ensure that departments within the firm are working together toward common goals?

5. Under what circumstances would a firm benefit from outsourcing a portion of its business operations? What are the major costs and benefits that would need to be considered when deciding to outsource? (Identify at least two costs and two benefits.)

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