Now listen and check your answers.

 

 

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Before you read _

Discuss this question with your partner.

What do you think a company has to spend money on? Make a last of you ideas.

 

D Vocabulary

■ interest	■ keep track of	■ loan
■ maintain	■ minus	■ nasty
■ part-time	■ rate	■ relationship
■ revenue	■	■ the short term

Complete each sentence with a word or phrase from the box.

 

1 I.......................what I spend by writing everything down in a notebook.

2 There is a.......................between the quality of a product and its cost.

3 Company's total.......................is all the money it receives from sales.

4.......................is the next few weeks or months The long term may be the next years or decades.

Five.......................three is two.

6 Factories have to.......................their machines keep them working properly.

7 A.......................worker works for only a few hours a day or a few days per week.

8 When someone or something is........................ they aren't nice at all.

9 If you borrow money from a bank, you have to pay it back with an extra charge which is called

10 When somebody lends money, they are giving a

11 The.......................at which something happens is how fast it occurs.

 

 

Costs and supply

Companies have to spend money in order to make

money. The money they spend to manufacture their goods or provide their services are called coats. Costs are important. Any company that doesn't keep track of costs will soon be in trouble. And there are many different kinds of costs to keep track of such as fixed costs and variable costs.

Why arc costs i mportant? Well, for two reasons Firstly, there is a relationship between costs and profit. Profit is overall revenue minus costs. Secondly, there is a relationship between costs and supply To understand this relationship, w e need to look at some types of cost.

 

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One type is fixed costs. Fixed costs are costs that don't change. They are costs that the company has to pay each month, for example, or each year. The value of fixed costs will not rise or fall in the short term. Examples include the rent the company pays, the interest they have to pay each month on any loans and the salaries they have to pay for permanent employees. The good news about fixed costs is that they don't change with increases in production. For example, imagine a company produces 1,000 pens in January and 2,000 pens in February. The rent for the factory remains the same for both months. Variable costs, however, change (vary) with the size of production. The more pens the company produces, the more these costs increase. Examples of variable costs are the raw materials needed for production, the cost of electricity and the cost of maintaining machines that are working more. Also, the company may need to get more part-time employees. Their hourly pay is another variable cost. In unit 1 we said that the price of a product or service increases as supply increases. Variable costs are the reason why.

In a perfect world, variable costs will increase steadily as production increases. This is called constant return to scale and it is shown in figure 3 on page 27. However, this is not a perfect world! Sometimes, variable costs rise at a faster rate than production. This nasty situation, which is called a dis-economy of scale, is shown in figure 4 on page 27. On the other hand, companies sometimes get lucky. Variable costs can rise at a much slower rate than production. This is called an economy of scale, and is shown in figure 5 below.

_

 

 

E Comprehension

Now read the text again and answer these questions in your own words in the space provided below.

1 What are costs?

2 Why are costs important?

3 What are fixed costs?

4 What are variable costs?

5 Why is an economy of scale good?

6 Why is a dis-economy of scale bad?

Notes:

 

Before you listen

Discuss the following with your partner.

Price is not only the cost of something. Every purchase has a hidden cost. What do you think this is?

F Listening)))

You're going to hear about another kind of cost called opportunity cost. Listen and choose the best answer for each question. Then listen again and check your answers.

 

1 What is opportunity cost?

A Something you have to give up in order to

have something else. В Something a company can charge people for

goods or services. С Something that companies pay when they first

start business.

 

2 What could be the opportunity cost of watching television?

A Getting sore eyes.

В The cost of buying a television.

С Not sunbathing in the garden.

3 What is the opportunity cost for Alice's decision?

A £3,000 В £39,000 С £13,000

 

 

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G Speaking

Discuss these questions with your partner.

How do you make decisions about what to buy?

Do you think people make rational decisions? Why/Why not?

 

Task

 

Imagine you are the manager of a small manufacturing business (you decide what the company makes). Give a short talk to your employees explaining what the company's costs are.

First, read the texts again and make notes on the following:

fixed costs

variable costs

Does your company have an economy of scale?

 

Notes:

Pronunciation guide

Utility

Marginal

Revenue

Employee

Constraint

 

H Writing

You're the librarian at your school. The head teacher has asked you to buy some, more materials for the library. You can choose from the following.

books, including fiction for teenagers, poetry. special interest and hobby books (?10 each)

magazine subscription for one year (either a music magazine or a fashion magazine) (?50)

educational CD-ROMS for science, history and technology (?20 each)

a set of encyclopaedias (?100)

Your budget constraint is?200.

 

E-mail to your head teacher

Write an e-mail to your head teacher explaining the budget constraints you have. Tell him or her what you want to buy and why.

PARAGRAPH 1

Explain why you're writing.

Useful words and phrases:

Dear... I'm writing in order to

PARAGRAPH 2

Explain your budget constraints and the costs of materials.

Useful words and phrases:

Our current budget constraint is...

There are a range of materials that we could

buy: These include...

PARAGRAPH 3

Say how you intend to spend the money.

Useful words and phrases:

After careful consideration. I think the best purchases would be...

PARAGRAPH 4

Give reasons why you have chosen to spend the money in this way.

Useful words and phrases:

I have chosen, because, would be a good purchase because, would be very useful for, first, next, in addition, finally

Sign off in a polite way

 

 

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Before you read_

Discuss the following with your partner.

Here are some things that affect how a market operates. How important do you think each one is?

the size of companies

what products and services are like

what information consumers and companies have about products

ease of entry into the market for companies

companies having the resources and technology they need

 

A Vocabulary

Choose the correct answer А, В or С from the list opposite.

 

1 Companies usually have a.......................with

senior managers at the top and employees at the bottom.

2 McDonald's has a very big.......................of the

fast food market.

3 Some teachers mark students work using a

.......................from A to E.

4 No one's work is We all make

mistakes

5 A perfect economic system may never

6 A.......................monopoly means an absolute or

complete monopoly.

7 Not all twins are........................Some twins are

brother and sister, for example.

8 Sometimes a person's colour or race can be a

.......................to getting work.

9 We use curtains to.......................light.

10 Countries have been.......................with each

other for thousands of years.

11 The.......................point is where two things are

balanced against each other.

12 Honey is a healthier.......................for sugar to

make things sweet.

Everyone should have.......................to education.

1A shape	1B structure	1C building
1A piece	2B part	2C market sham
3 A scale	2B point	3C grade
4A good	4B better	4C ported
5A is	5B live	5C exist
6A pure	6B good	6C clean
7A similar	7B identical	7C same
8A gate	8B barrier	8C block
9A barrier	9B close	9C block
10A shopping	10B trading	10C selling
11A equilibrium	11B middle	11C equal
12A difference	12B addition	12C substitute
13A access	13B openings	13C entrance

Reading 1(UNIT 6)