The Costs of Jeans Production

Total cost includes both fixed and variable costs. Fixed costs must be paid even if no output is produced (point A). Variable costs start at zero and increase with the rate of output. The total cost of producing 15 pairs of jeans (point B) includes $120 in fixed costs (rent on the factory and sewing machines) and $125 in variable costs (denim and wages). Total cost rises as output increases, because additional variable costs must be incurred.

In this example, the short-run capacity is equal to 51 pairs (point G). If still more inputs are employed, costs will rise but not total output.

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

a) The total cost of producing a good equals the market value of all the resources used in its production.

b) Total cost rises as output increases.

c) Costs of production do not change when the rate of output is altered.

d) The amount of labor employed in the production can be varied easily.

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

1. ціна	14. витрати, пов’язані з	27. суть, сутність
2. витрати	15. наймати або здавати в оренду	28. витрати на робочу силу
3. прибуток	16. заробітна плата робітників	29. взяти вихідний день
4. перевищувати доходи від продажу	17. вважати	30.зниження, скорочення
5. максимізувати валовий прибуток	18. рулон	31.добова продуктивність
6. точка відліку	19. ігнорувати	32. перемінні витрати
7. рішення про поставки	20. потенційні витрати	33. отже
8. розглядати	21. припущення	34. залишатися
9. містити в собі, включати	22. становити (суму)	35. приблизно
10. ринкова вартість, біржова ціна	23. змінювати рівень виробництва	36. високий
11. визначати, вирішувати	24. постійні витрати	37. надлишок, крайність
12. установлювати, розпізнавати	25. бути зобов’язаним	38. витрати
13. обчислювати, підраховувати	26. платити орендну плату (2)

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

a) Profit is a surplus generated by business activity.

b) The market value of all resources used to produce a good or service is total cost.

c) The costs of production include both fixed and variable costs.

d) Fixed costs (e.g., space and equipment leases) are incurred even if no output is produced.

e) Fixed costs are costs of production that change when the rate of output is altered.

f) There are no fixed costs in the long run since all inputs are variable and hence their costs are variable.

g) Fixed costs remain the same regardless of the level of production.

h) Variable costs are costs of production that remain the same when the rate of output is altered.

i) Variable costs are costs that change as output changes.

j) Variable costs (e.g., labor and material) are incurred when plant and equipment are put to use.

k) Variable costs start at zero and increase with the rate of output

l) Total cost rises as output increases, because additional variable costs must be incurred.

4. Answer the questions.

a) What does and doesn't a production function tell us?

b) What does the level of desired output depend on?

c) What is the most desirable rate of output?

d) What is the starting point for supply decisions?

e) How to determine the total cost of producing a product?

f) Do all total costs change when the rate of production is altered?

g) What factor of production is regarded as a variable cost?

h) What is the way to avoid fixed costs in the short-run?

5. Write key words and phrases to each paragraph of the text.

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