Book 1 - Chapter 1

Reinforcement Problems
LG	1-1.
	a. A meal is created using various resources such as labor, food, and equipment. The meal provides valuable pleasure and energy to the customer, who pays for it. b. Information is made available that will inform people of the availability of new services and low-cost loans. People will want this information and want to borrow money, for which the bank will charge. c. The automobiles are made safer, which customers will perceive as adding to the total value of the automobile, making it more desirable. At a minimum, the cost of testing resources will be added to the price of the new car. The customer will probably pay it—and probably much more—very willingly. d. People are willing to pay more for better, safer surgery.

LG	1-2.
	a. Unless you think that people will like liver-flavored toothpaste (personally, I find it revolting), I would say that the total added value of the toothpaste is zero (unless it might be sold as a joke novelty) because I think no one will buy it at any price. So, the cost of the resources used to produce it will be lost, because thousands of tubes of the toothpaste will have to be disposed of, probably in a toxic-waste site. b. This is a difficult question, but typical of the uncertainty managers have to deal with. First, my feeling is that the exercise and child-care facilities will probably add more value than the value received from using four new trucks, depending upon how many other trucks are available and the need for the new ones. This is because healthy employees and employees with peace of mind will be far more careful and creative. They will produce and create quality things that ultimately increase the total added value (revenue). Second, cost of production will probably decline, employee turnover and training costs will be reduced, and company loyalty might be created. Thus, total expenses will also probably be reduced. This reduces the amount of resources used, even if total added value is not changed at all.

LG	1-3.
	a. This is a combination business. It is both a service (veterinary service) and a merchandising (pet-care products) business. However, it is primarily a service business. b. The clinic adds value primarily by providing veterinary medical care, which people need and are willing to pay for. Secondarily, the clinic adds value by offering a selection of pet-care merchandise, which people also need and will pay for. Two new resources are being created: (1) veterinary medical services, and (2) pet-care merchandise selection. c. Total added value confirmed by the revenue was $40,700 ($38,500 + $2,200). Based on the initial prices, the clinic apparently thought the merchandise had an added value of $2,500, instead of $2,200 it actually sold for. d. (1) Service resources consumed: $25,900 ($21,200 + $2,000 + $450 + $1,100 + $400 + $750) (2) Property resources consumed: $2,800 ($2,000 + $800) e. The value chain includes consuming both services and property. Wages, rent, utilities, repairs, supplies, advertising, accounting and management, and cost of merchandise sold are the items that we know about. Total expenses in the value chain were $28,700.

Learning Goal 1, continued

SOLUTIONS

Section I . What Is a Business?

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