Problems of production

Most consumers think producers reap huge profits from every market sale. Most producers wish that were true. The average producer earns a profit of only four to six cents on every sales dollar. And those profits don't come easily. Producers earn a profit only if they make the correct supply decisions. They have to keep a close eye on prices and costs and produce the right quantity at the right time. If they do all the right things, they might make a profit. Even when a producer does everything right, however, profits are not assured. Over 50,000 businesses failed in 1995, despite their owners' best efforts to make a profit.

We look at markets from the supply side, examining two distinct concerns. First, how much output can a firm produce? Second, how much output will it want to produce? As we'll see, the answers to these two questions are rarely the same. The capacity to produce is determined by resources and technology. By contrast, the choice of how much capacity to use is dictated by profit-and-loss considerations. If costs escalate as capacity is approached, it might make profit sense to produce less than capacity output. In some situations, the costs of production might even be so high that it doesn't make profit sense to produce any output from available facilities.

The question of how much can be produced is largely an engineering and managerial problem. The question of how much should be produced is an economic issue. The producer is confronted with a choice about resource utilization. That behavioral choice will be influenced by profit-and-loss calculations. The end result will be a supply decision, that is, an expressed ability and willingness to produce a good at various prices.

This chapter focuses on those supply decisions. We first look at the capacity to produce, then at how choices are made about how much to supply. The analysis revolves around three questions:

• What limits a firm's ability to produce?

• What costs are incurred in producing a good?

• How do costs affect production decisions?

Once we have answered these questions, we will be able to make sense of supply decisions. We will then look at how supply and demand decisions come together in various markets to determine WHAT goods are produced, HOW they are produced, and FOR WHOM.

1. Which of these statements expresses the main idea of the text?

1. Supply decisions are constrained by the capacity to produce and the costs of using that capacity.

2. Producers have to keep a close eye on prices.

3. A supply decision is an expressed ability and willingness to produce a good at various prices.

4. The question of how much should be produced is an economic issue.

2. Find in the text English equivalents of these words and phrases.

споживач	14. незважаючи на	27. протистояти
виробник	15. зусилля, спроба	28.використання ресурсів
пожинати (плоди)	16. продукція, випуск	29. впливати
величезний	17. рідко однаковий	30.підрахунок прибутків та збитків
ринковий продаж, збут	18. обсяг, об’єм	31. кінцевий результат
середній виробник	19. визначатися	32. здібність, здатність, уміння
отримувати прибуток	20. вибір	33. готовність
зробити правильний вибір	21. розгляд прибутків та збитків	34. виготовляти товар по різній ціні
необхідна кількість	22. витрати	35. зазнавати, підпадати
своєчасно	23.розширювати, розширити	36. впливати
отримувати прибуток	24. звертатися до	37. виробниче рішення
забезпечувати, переконувати	25. витрати виробництва
зазнавати невдачі	26. наявні можливості

3. Are these statements true or false? Correct the false ones.

1. Most producers earn huge profit from every market sale.

2. Supply decision is the ability and willingness to sell specific quantities of good at alternative prices in a given time period.

3. Profit greatly influences the production of any goods.

4. Production is the most important managerial problem.

4. Answer the questions.

1. When do producers earn a profit?

2. What is dictated by profit-and-loss consideration?

3. What is an engineering and managerial problem?

4. What is an economic issue?

5. What will be the end result?

6. When will we be able to make sense of supply decision?

5. Write a summary of the text.

Text 11