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Theory of Supply
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The theory of supply is the theory of how much output firms choose to produce. The principal assumption of the supply theory is that the producer will maintain the level of output at which he maximizes his profit.
Profit can be defined in terms of revenue and cost. Revenue is what the firm earns by selling goods or services in a given period such as a year. Costs are the expenses which are necessary for producing and selling goods or services during the period. Profit is the revenue from selling the output minus the costs of inputs used.
Cost should include opportunity costs of all resources used in production. Opportunity cost of commodity is the amount obtained by an input in its best alternative use (best use elsewhere). In particular, costs include the owner’s time and effort in running a business. Costs also include the opportunity cost of the financial capital used in the firm.
Aiming to get higher profits, firms obtain each output level as cheaply as possible. Firms choose the optimal output level to receive the highest profits.
Making economic forecasts, it is necessary to know the effect of a price change on the whole output rather than the supply of individual firms.
Market supply is defined in terms of the alternative quantities of a commodity all firms in a particular market offer as price varies and as all other factors are assumed constant.
VII. Ответьте на вопросы к тексту.
1. What is the principal assumption of the supply theory?
2. What is the difference between profit and revenue?
3. What is included in cost of production?
4. How do firms get maximum profits?
5. What is market supply? What is market supply important for?
VIII. Составьте предложения из двух подходящих по смыслу частей.
| 1. Market demand is | a. revenue minus cost. |
| 2. An improvement of technology is a change that | b. the firm can select the output level maximizing its profit. |
| 3. Profits are | c. paid out as dividends. |
| 4. As long as the total demand and the total supply of the commodity remain equal, | d. the equilibrium price will remain unchanged. |
| 5. Part of company’s profits is put back into the business rather than | e. makes it possible for firms to produce more goods with the same amount of resources as before. |
| 6. With inflation, people have to increase expenditure because | f. how much the amount received is greater than the amounts paid. |
| 7. Profit depends on | g. the total demand from all consumers. |
| 8. Opportunity cost is the amount | h. old the level of expenditure in money terms now buys a smaller quantity of goods. |
| 9. Examining how revenues and costs change with the level of output produced and sold | i. an input can obtain in its use elsewhere. |
IX. Выпишите все коммерческие и экономические термины, которые встречались в тексте и переведите их на русский язык.
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