Reading
Date: 2015-10-07; view: 384.
Vocabulary
Theory of Production and Cost in the Short and Long Run
UNIT 4
Using your dictionary, match words in A with their synonyms in B.
| A | В |
| 1. to produce | a) to give |
| 2. cost | b) to employ |
| 3. to provide | c) to pay |
| 4. to invest | d) to buy |
| 5. to charge | e) to overcome |
| 6. to face | f) price |
| 7. to hire | g) difference |
| 8. to purchase | h) to manufacture |
| 9. distinction | i) to put money in |
1.Skim through text 23 and think of the suitable title.
TEXT 23
Managers must have information about the cost structure of their firms because the cost of producing the goods and services they sell provides the foundation for some of the most important decisions a manager makes: whether to operate or shut down a production facility; how much to produce if the firm does operate; how much to invest in capital equipment; and, frequently, even the price to charge for the product. Knowledge of the cost structure of the organization is also important for managers in government and in nonprofit organizations. As you will see, the structure of a firm's costs is determined by the nature of the production process that transforms inputs into goods and services, and the prices of the inputs used in producing the goods or services.
Managers face two different types of decision-making frameworks: short-run decisions and long-run decisions. Short-run decision making takes place when the level of usage of one or more inputs is fixed at a specific level. In a typical short-run situation, the manager has a fixed amount of plant and equipment with which to produce the firm's output. The manager can change production levels by hiring more or less labour and purchasing more or less raw materials, but the size of the plant is viewed by the manager as essentially unchangeable or fixed for the purposes of making production decisions in the short run.
Long-run decision making concerns the same types of decisions as the short run with one important distinction - the usage of all inputs can be either increased or decreased. In the long run, a manager can choose to operate in any size plant with any amount of capital equipment. Once a firm builds a new plant or changes the size of an existing plant, the manager is once more in a short-run decision-making framework. Sometimes economists think of the short run as the time period during which production actually takes place, and the long run as the planning horizon during which future production will take place. As it turns out, the structure of costs differs in rather crucial ways depending upon whether production is taking place in the short run or whether the manager is planning for a particular level of production in the long run.
2. Comprehension check.
Working in pairs, answer the questions:
1) Why is it important to have information about the cost structure of a firm?
2) What types of decisions do managers usually face?
3) What is the difference between short-run decisions and long-run ones?
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