Get Ready for the Postgraduate Entrance English Exam. Working with Texts. Часть 1. Учебное пособие

about how to deal with other firms that supply them with goods and services and with workers they hire. They must also decide how to market their products.

Production of Goods and Services to Be Sold

A manager is a person who coordinates decision within a firm. Managers make decisions about methods of producing goods and services. They also help decide what and how much to produce and how the firm will adapt to change and new technology. The firm’s managers and owners hire workers and assign them various tasks. The managers must also decide which tasks the firm’s workers have to perform and which tasks to fulfill by purchase (or contract) with other firms. For example, as the manager of a restaurant you can buy equipment and hire workers to launder tablecloths, napkins and uniforms. Alternatively, you can send these items out to a laundry.

Assignment of Tasks to Workers vs. Contracting with Other Firms: Determining the Degree of Vertical Integration

A fully vertically integrated firm doesn’t purchase the goods or services of any other firms in the process of making its products available to consumers. Such a firm supplies itself with materials, parts and all other services. A fully vertically integrated firm is a rarity. Managers of most firms find it cheaper to rely on specialized firms for at least some materials and services.

A key factor in determining the degree of vertical integration of a firm is the transaction costs involved in contracting with other firms to provide services needed for the production or marketing of the firm’s output. Firms try to keep their transaction costs, as well as production costs, as low as possible to earn a higher profit. Managers are always looking for ways to lower the costs of operating the firm. For example, a department store manager can hire and train workers as security guards. Alternatively, she can obtain guard services under contract with a specialized firm. To a great extent she’ll base her choice on the costs of these two methods.

It stands to reason that a firm’s own employees perform some tasks more reliably, more conveniently, and, most important, at lower cost than outsiders. This is why there’s at least some degree of vertical integration within its organization divisions that perform the same functions as independent businesses existing elsewhere in the economy. There are a

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number of reasons why a firm may choose to integrate operations that could be performed by or purchased from other firms.

1.To ensure a reliable flow of materials and services as inputs. By controlling its own production, a manufacturer can reduce or eliminate delays that might prevent it from shipping its orders on time. Of course, each firm has to calculate whether integration of such an operation within the firm actually does reduce uncertainties in input supply.

2.To put rival firms at a disadvantage by controlling a key input. For example, if an aluminum manufacturer acquires all the bauxite mines that exist, it gains control of a key input into the production of aluminum. Control of this input could prevent rival firms from producing the good.

3.To adapt more easily to changing technology. Changes in the technology of producing parts and components can have a significant effect on the way a firm assembles its output. By constantly communicating with an integrated division supplying materials, the firm’s managers might more easily keep abreast of these changes.

What’s the most desirable degree of vertical integration for a firm? It boils down to a question of cost and quality of product. The advantages of vertical integration are likely to differ from industry to industry and from firm to firm. It’s not unusual to see firms with varying degrees of vertical integration competing with one another in the same industry. When deciding whether to deal with other firms or establish internal divisions in the firm to make inputs available, owners and managers consider the costs of searching for the best price, negotiating contracts with suppliers, taking on risks associated with contractual arrangements and other transaction costs.

II. Vocabulary Items

cost n – затраты, издержки

customer n – заказчик, клиент, покупатель delay n – простой

employee n – рабочий, служащий hire v – нанимать

input n – затраты (на производство) item n – вид товара, изделие

keep abreast of – не отставать от, идти в ногу с

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manufacturing a – промышленный

negotiate a contract – заключать контракт (договор) operate v – управлять

output n – продукция, выпуск

outsider a – посторонний (человек), не принадлежащий к данному учреждению

owner n – собственник, владелец ownership n – собственность, владение production costs – издержки производства profits n – прибыль, доход

raw materials – сырье

reduce v – снижать, сокращать subsidiary n – дочерняя компания supplier n – поставщик

supply v – снабжать

transaction n – экономическая операция, сделка

III. Exercises

1.Read the text.

2.Learn the vocabulary items by heart.

3.Translate the text in written form.

4.Retell the text using the following expressions and terms: to earn profit, business firm, enterprise, to conduct business, vertical integration, raw materials, final product, operating subsidiaries, to adapt to change and new technology, transaction costs, to provide services, the firm’s output, to reduce delays, key input.

IV. Test I (3)

1. Read the text again and decide which statements are true.

1.A lot of modern business firms operate plants that produce a variety of goods.

2.A fully vertically integrated firm purchases the goods or services of any other firms in the process of making its products available to consumers.

3.A firm’s own employees perform some tasks more reliably, more conveniently, and, most important, at lower cost than outsiders.

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4.The degree of vertical integration of a firm depends on the transaction costs involved in contracting with other firms to provide services needed for the production or marketing of the firm’s output.

2. Match the words given in the left column with the words in the

Unit 4

I. Information for study

Pure Monopoly

A pure monopoly occurs when there is a single seller of a product that has no close substitutes. Buyers who want to consume the product of a monopoly firm have only one source of supply for that particular good. As you know, perfect competition is characterized by the inability of individual sellers to control price. No individual firm produces a large enough share of the total market supply to affect price. Monopoly, on the contrary, is characterized by concentration of supply in the hands of the owners of a single firm.

In actuality, it’s rare for national or world market to have only one seller. The De Beers Company of South Africa, through its syndicate called the Central Selling Organization, accounts for about 85% of the annual sales of diamonds. Although by the definition just given De Beers can’t be regarded as a pure monopoly firm, it’s pretty close to one. When De Beers offers more diamonds for sale per month, other things being

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equal, the price of diamonds will fall. Although De Beers isn’t pure monopoly firm, it sells a very large share of the uncut diamonds purchased each year. It can influence diamond prices by controlling the amount it offers for sale.

A firm has monopoly power if it can influence the market price of its product by making more or less of it available to buyers. Although pure monopoly is very rare, monopoly power is quite common.

Local monopolies are more common than national monopolies, and local markets often are served by single sellers. However, there are few if any products that have no substitutes. A local electric power company may be the sole seller of electricity in an area, but electricity in its multitude of uses does have substitutes for electric heat. Similarly, the U.S. Postal Service is the single supplier of the letter delivery. However, telecommunication, including electronic transmission of messages, is a substitute for the mail service.

In most regions where local monopolies provide public utility services, the seller can’t set the price it charges for service. Most local monopolies that provide electricity, natural gas and transportation services to regions are regulated by state and local government agencies. In evaluating rates charged by utility monopolies, there are regulatory agencies influenced by political as well as profit considerations. In fact, in many cases these monopolies are actually owned and operated by government agencies. The undesirable outcomes we expect when a pure monopoly firm has freedom to set its prices lead to political intervention to control the monopolist’s pricing policies.

The Demand for a Monopolist's Product

A common mistake made by people who criticize monopoly is to assume that the demand for a monopolist's product is perfectly inelastic. This assumption is without foundation. In fact, as you'll see shortly, a monopolist seeking to maximize profits will try to avoid serving markets in which demand is inelastic! Consumers always have the alternative of doing without a monopolist's product when its price is increased. For example, if your local electric monopoly raises its price, you and other consumers can cut down on your use of electricity. You might use your air conditioners less or be more careful about turning out lights when leaving a room.

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If there were only one seller of automobiles in the United States, we'd still react by buying more cars when the monopoly seller lowered prices, and buying fewer when prices increased. The managers of a monopoly firm take this fact into account when deciding on their price. They know that the amount they'll sell depends on the price they choose. Because there's only one seller in a pure monopoly market, there's no distinction between the market demand curve and the demand curve for the firm's product. The output of a pure monopoly firm is the market output.

The demand curve for the pure monopolist's product is the downwardsloping market demand curve that would be faced by an entire competitive industry. For this reason the monopolist's pricing decision is inseparable from the decision about how much to offer for sale. The higher the price it sets, the lower the quantity it will sell.

Monopoly Supply

A supply curve shows a relationship between price and quantity supplied by a firm or an industry. Competitive firms simply react to prices. A monopolist, however, is a price maker. It chooses the price that maximizes its profits and lets consumers decide how much to buy at that price. A monopoly firm does not react to a price.

A monopoly firm decides how much to produce on the basis of information it has on the demand for its product. Given this information, it prices its product so that marginal revenue equals marginal cost.

Even though a monopoly firm has an upward-sloping marginal cost curve at any point in time, it doesn't necessarily increase quantity supplied when the demand for its product increases. Sometimes a monopoly firm reacts to an increase in demand by raising the price of its product rather than increasing quantity supplied! The change in quantity supplied by a monopoly firm depends on the shift in its marginal revenue curve when demand increases. For example, if the demand for a monopolist's product increases, the monopolist might find it can increase profits more by raising price rather than increasing the quantity supplied. In deciding how to respond to an increase in demand, the monopolist examines the way the price elasticity of demand has changed to figure the new marginal revenue associated with each possible output. It then adjusts price to maximize profit given the new marginal revenue curve by choosing the price that allows sale of the output for which under the new demand.

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II. Vocabulary Items

affect v – оказывать влияние annual a – годовой

assume v – предполагать, допускать buyer n – покупатель

competition n – конкуренция

cut down (on) n – сокращать потребление (чего-л.) demand curve – кривая спроса

inelastic a – неэластичный marginal a – минимальный

monopoly n – монополия, исключительное право multitude n – большое число, масса

price v – оценивать pure a – чистый, полный revenue n – доход

seller n – продавец share n – доля, часть source n – источник substitute n – заменитель

supply curve – кривая предложения

III. Exercises

1.Read the text.

2.Learn the vocabulary items by heart.

3.Translate the text in written form.

4.Retell the text using the following expressions and terms: a single seller, a sole seller, perfect competition, other thing being equal, the total market supply, local monopolies, national monopolies, to have no substitutes, public utility services, to set prices, to be perfectly inelastic, pure monopoly market, downward-sloping market demand curve, an entire competitive industry, a supply curve, a price maker, marginal revenue, marginal cost, upward-sloping marginal cost curve.

IV. Test I (4)

1. Read the text again and decide which statements are true.

1.In evaluating rates charged by utility monopolies, there are regulatory agencies influenced by political as well as profit considerations.

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2.However, there are few products that have no substitutes.

3.The demand for a monopolist's product is perfectly inelastic.

4.If there were only one seller of automobiles in the United States, we'd still react by buying fewer cars when the monopoly seller increased prices, and buying more when prices lowered.

2. Match the words given in the left column with the words in the

Final Test I

1. Match the Russian terms on the left with the English ones on the

2. Match the English terms on the left with the Russian ones on the

3.Fill in the gaps with words from the list below.

1.Businesses who produce new … supply businesses with new machinery to replace the worn out or obsolete machinery.

2.The … measures the ratio of the number of people classified as unemployed to the total labor force.

3.The terms used to describe the ownership of plants used in various stages of its production by a single firm is … .

4.A firm has … if it can influence the market price of its product by making more or less of it available to buyers.

5.Managers are always looking for ways to lower the … of operating the firm.

6.The … for the pure monopolist’s product is the downwardsloping market demand curve that would be faced by an entire competitive industry.

1.monopoly power

2.demand curve

3.vertical integration

4.capital goods

5.unemployment rate

6.costs

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Глава II

Экономика и управление народным хозяйством: теория управления экономическими системами; экономика, организация и управление предприятиями, отраслями, комплексами

Unit 1

I. Information for study

Management

"Management" characterizes the process of leading and directing all or part of an organization, often a business, through the deployment and manipulation of resources (human, financial, material, intellectual or intangible). One can also think of management functionally, as the action of measuring a quantity on a regular basis and of adjusting some initial plan, and as the actions taken to reach one's intended goal. This applies even in situations where planning does not take place. Situational management may precede and subsume purposive management.

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