MICRO ECONOMICS PROJECT

REPORT
This project report has been researched, analysed and compiled by
all members of Group 8, of Section A of PGDM 1 batch of Great
Lakes Institute of Management, Gurgaon under the expert guidance
of Dr V.P. Singh. We thank sir for his constant support and
motivation.
Group 8 consists of:
1. Anjani Kumar Sharma – P181A05
2. Gaurav Modi – P181A17
3. Mohd. Aquib Ghauri – P181A29
4. Namrata Singh – P181A30
5. Saumya Tiwari – P181A45

WRIST BANDS
 INDEX
S.NO CONTENTS PG.NO REMARKS
1 INTRODUCTION 3
2 QUESTIONNAIRE 4
3 DEMAND DETERMINANTS 8
4 DEMAND ESTIMATION 8
5 REGRESSION ANALYSIS 10
6 COST OF PRODUCTION 11
7 REVENUE CURVE 13
8 BREAKEVEN ANALYSIS 14
9 OWN PRICE ELASTICITY 16
10 COST PRICE ELASTICITY 16
11 MARGINAL 17
REVENUE=MARGINAL
COST
 INTRODUCTION
Personalized wrist bands for every batch at GLIM, Gurgaon.
We will offer upmarket silicone wristbands with the batch name
engraved on one side, and the logo printed on the other. We
will also offer a GLIM wristband common for all students and
faculty with the GLIM logo and name engraved. Black colour will
be available for all products.
We feel that as a lot of us are unable to wear a common GLIM t-
shirt, we do need a uniting factor among us to represent us as
Great Lakers. A wristband, although seems basic and an after-
thought, can be a strong bonding accessory that makes us
proud to represent our batch, or Great Lakes as a whole. It can
prove to be a uniform in disguise, something that unites us and
forms even better connections and a bond amongst one
another.
We can expand on the idea by organizing events/competitions
around the wristbands product and make it even more
cherished by the students.

ROLES OF TEAM MEMBER

 Production- Gaurav Modi
 Operations/Logistics – Anjani Kumar Sharma and Saumya
Tiwari
 Planning and Finance – Mohd Aquib Ghauri and Namrata
Singh
 Sales and Marketing – Gaurav Modi and Namrata Singh

BUSINESS MODEL
 Manufacturer Customization Proocurement Selling

RETAIL BUSINESS MODEL

 Purchasing the product and customized it from the Manufacturer of
wristbands at wholesale price
 Selling it to the consumers
The value propositions which we are looking forward to provide our customers
are free door to door delivery and special variant order

QUESTIONNAIRE
The following questions were asked as a part of or internal
survey

1. How frequently do you wear wristbands?

a) Always
b) Frequently
c) Sometimes
d) Rarely
e) Never

2- How much would you pay for a wristband? (All figures in rupees)
a) 20
b) 25
c) 30
d) 35
e) 40
f) 45
 3- Which wristband would you purchase?
a) Jaguars/Aztecs/Ninjas
b) GLIM
c) Both

PURPOSE OF THE QUESTIONNAIRE

The information which we wanted to seek from the
questionnaire is as follow:

 Are the customers willing to buy our product? 

 Which type of printed wristband would have better
prospects of selling in terms of this specific market
 To forecast how much quantity, we will need to sell.
 Ordering the products on the basis of the market survey
conducted on payment pattern.
 The proportion at which we need to purchase different
type of printed wristbands, so that we could optimize our
sales and cater to the actual demand
 The ideal price range of wristband for which the demand
would be the highest
1. How frequently do you wear wristbands?

13%
18%

15%

31%

23%

Always Frequently Sometimes Rarely Never

2. How much would you pay for a wristband? (All figures in rupees)

3% 3%
5%

10%
36%

18%

26%

20 25 30 35 40 45 50
 3. Which wristband would you purchase?

28%

38%

33%

Jaguar/Aztecs/Ninja GLIM Both

DIFFERENCES
After a survey amongst our team with the above questions we received
Striking responses. Some of the differences we found out between our
anticipations and responses are

 The demand for GLIM and Both seemed to be higher than we expected
it to be
 All the responses preferred wristband at a price range of 20-25
 There are people who never wear wristbands, but they are in lesser
Frequency
 Maximum number of people are those who wear it ‘frequently’ and
‘sometimes’, i.e. more than 50%
 DEMAND DETERMINANTS
 Price of Product (Px)
 Taste and Preference (Pt)
 Quantity of serving (Q)
 GLIM Population (N)
 Income of the Consumer(Y)

DEMAND EQUATION
Q = f (Px+ Pt+ Q+N+Y)
y= a-bx
y = Quantity Demanded
a = Intercept (Basic Needs)
b = Slope or sensitivity of Demand w.r.t price

DEMAND ESTIMATION THROUGH SAMPLES

TAKEN FROM QUESTIONNAIRE

Cost Sample 1 Sample 2 Sample 3 Sample 4 Sample 5 Market

20 4 3 2 2 3 14
25 2 2 2 2 2 10
30 2 1 1 1 2 7
35 1 0 1 0 2 4
40 0 0 1 0 1 2
45 0 0 0 0 1 1
50 0 0 0 0 1 1
 Demand Graph
60

50

40
Price

30

20

10

0
0 2 4 6 8 10 12 14 16
Quantity Demanaded

Overall Demand Graph

16
14
12
10
8
6
4
2
0
20 25 30 35 40 45 50

Sample 1 Sample 2 Sample 3 Sample 4 Sample 5 Market

- As the price in x-axis increases the demand decreases.

- Also, the market demand is the sum of individual demands.
 REGRESSION ANALYSIS
Quantity (x-x')(y-
Price (Px) (x-x') (y-y') (x-x')2
(Qx) y')
20 14 -15 14 -210 225
25 10 -10 10 -100 100
30 7 -5 7 -35 25
35 4 0 4 0 0
40 2 5 2 10 25
45 1 10 1 10 100
50 1 15 -4.71 -70.65 225
X’ = 35 5.71     -395.65 700

B=∑xy/∑x2 = -0.57 a=y`-bx` =25.49

Price
P Q P*Q
Elasticity
20 14 280 -0.81
25 10 250 -1.43
30 7 210 -2.44
35 4 140 -4.99
40 2 80 -11.4
45 1 45 -25.65
50 1 50 -28.5

- From the given data, we can understand that at a lower price of Rs.20,
we have an elasticity of only 0.81. It means that if we change price by
1%, while selling at Rs.20 then there will be a change in demand by only
0.81%. This means that price elasticity of demand at Rs.20 is Inelastic.
- At Rs.35, the elasticity is 4.99. This means at Rs.35, if we change price by
at least 1%, then the demand will change by 4.99%, which relates to the
fact that at Rs.35 our product will become highly elastic.
 - By calculating revenue, we can infer that when the product is sold at
Rs.20, we have maximum revenue which is Rs.280. This price elasticity is
0.81% which means it lies in the inelastic zone and we can earn the
maximum profit.

COST OF PRODUCTION
For the purpose of this activity/ project, we have assumed the total
units sold to be our output/ production.
The three main components of costs are:
Fixed Cost (FC) – A fixed cost is a cost that does not change with an increase or
decrease in the number of goods or services produced or sold. Fixed costs are
expenses that have to be paid by a company, independent of any business
activity
Variable Cost (VC) – A variable cost is a corporate expense that changes in
proportion with production output. Variable costs increase or decrease
depending on a company's production volume; they rise as production
increases and fall as production decreases.
Total Cost (TC) – A total cost is made up of variable costs, which vary
according to the quantity of a good produced, plus fixed costs, which are
independent of the quantity of a good produced and include capital that
cannot be varied in the short term, such as buildings and machinery.
Total Cost (TC) = Fixed Cost (FC) + Variable Cost (VC)
The fixed cost in our project is the product procurement expenses, the cost of
the Wristbands and delivery cost. The price which was fixed for our products
was Rs.4140/- for a week.
The variable cost in our project is the labour cost, i.e. the total cost selling per
day. The cost is Rs.20 for selling per hour. The total cost incurred to sell the
Wristbands from the market was Rs360, Hence Variable Cost is Rs.360 /-
Therefore, the total cost of our project stands to be the summation of the fixed
cost and variable cost i.e. Rs.4500/-
From the inferred data, we draw a cost curve between the Costs vs. Quantity.
 Total
Total
Sellin
Fixed Selling Variable Total Averag Margina
Qty g
cost Cost cost Cost e Cost l Cost
Time
per Day
(hrs.)
34 4140 2 40 40 4180 122.94 4180
70 4140 2 40 80 4220 60.86 40

100 4140 2 40 120 4260 42.60 40

140 4140 3 60 180 4320 30.86 60
196 4140 3 60 240 4380 22.35 60

245 4140 3 60 300 4440 18.12 60

300 4140 3 60 360 4500 15 60

Cost Curve
5000
4500
4000
3500
3000
Cost

2500
2000
1500
1000
500
0
34 70 100 140 196 245 300
Quantity

Fixed cost Variable cost Total Cost Marginal Cost

From the above data and graph we can see that our fixed cost is very
high compared to our variable cost.
So that we can say that in long term when every cost will be variable
then our cost of production will come drastically.
 Cost Curve
4500
4000
3500
3000
2500
Cost

2000
1500
1000
500
0
0 50 100 150 200 250 300 350
Quantity

Marginal Cost AverageCost

 On first day the marginal cost was very high, but as we progressed
further our MC came down drastically. This means if we would have
continued with our business more than 7 days our cost of production
would have come down substantially and we would have been able to
make much higher profits.

REVENUE CURVE

Day Qty SP Marginal Revenue Total Revenue

1 34 25 850 850
2 64 25 900 1750
3 100 25 750 2500
4 140 20 800 3300
5 196 20 1120 4420
6 245 20 980 5400
7 300 20 1100 6500
 Revenue Curve
7000
6000
5000
Revenue

4000
3000
2000
1000
0
34 70 100 140 196 245 300
Quantity

Marginal Revenue Total Revenue

From the above table and graph we can infer that MR has been fluctuating
everyday but TR has been on a constant rise. This suggest that as we continue
doing our business in current scenario we will keep on increasing our revenue
and thus we should continue with this business model.

BREAKEVEN ANALYSIS

Estimation of Break Even

Fixed Cost Components
 Delivery Charges = ₹ 500
 Procurement expenses = ₹ 340
 Cost of Stock = ₹ 3000
 Cost of Printing= ₹ 300

Hence, Total Fixed Cost= ₹ 4140

Total Variable Cost= ₹ 360
 Quantity Sold Total Cost Total Revenue
34 4180 850
70 4220 1750
100 4260 2500
140 4320 3300
196 4380 4420
245 4440 5400
300 4500
Break Even Analysis 6500

Total Cost Total Revenue

7000
6000
Total Cost/Revenue

5000
4000
3000
2000
1000
0
34 70 100 140 196 245 300

Qty Sold

The breakeven point for a Firm is the condition where the Total Revenue and
the Total Cost Curve meet. It’s the point where the firm has no profits and no
losses.
For our project, the breakeven point has been achieved at Day 5.
The Total cost at this point is Rs.4380, which has been surpassed by the Total
Revenue at Rs.4420 and 196 units.
To arrive at the Break Even Point earlier, the fixed cost for product delivery
could have been avoided by personally picking up the order from the supplier
and if the cost price of manufacturing would be less than Rs.11.
 OWN PRICE ELASTICITY
The price elasticity of demand (PED) captures how price-sensitive consumers
are for a given product or service by measuring the responsiveness of quantity
demanded to changes in the good’s own price. The own-price elasticity of
demand is often simply called the price elasticity.

The following formula is used to calculate the own-price elasticity of demand:

Own Price Elasticity=%Change in Quantity Demanded / %Change in Price

The formula above usually yields a negative value because of the inverse
relationship between price and quantity demanded. 

When we change our Price from Rs.25 to Rs.20 on Day 4, which is 20% of the
price change.

Then our quantity demanded increase from 100 to 140 which is 40% of the
change in quantity demanded.

So our Own Price Elasticity = 40/20, which is equals to 2. That means our
product is highly elastic, though we initially thought our product is inelastic
because there is no competition.

CROSS PRICE ELASTICITY

The measure of responsiveness of the demand for a good towards the change
in the price of a related good is called cross price elasticity of demand. It is
always measured in percentage terms.   With the consumption behaviour being
related, the change in the price of a related good leads to a change in the
demand of another good. Related goods are of two kinds, i.e. substitutes and
complementary goods.

Cross Price elasticity = percentage change in Quantity demanded of X /

percentage change in Price of Y

As we don’t have any substitute goods or complementary goods, hence we

can’t take the cross price elasticity of our product in the given market.
 MARGINAL REVENUE = MARGINAL COST
MARGINAL REVENUE: Marginal revenue is the additional income generated
from the sale of one more unit of a good or service. It can be calculated by
comparing the total revenue generated from a given number of sales and the
total revenue generated from selling one extra unit.
MARGINAL COST: MC indicates the rate at which the total cost of a product
changes as the production increases by one unit. However, because fixed
costs do not change based on the number of products produced, the marginal
cost is influenced only by the variations in the variable costs.
Marginal revenue is significant in economic theory because a profit maximising
firm will produce up to the point where marginal revenue (MR) equals
marginal cost (MC).

Profit Maximization Curve

4500
4000
3500
3000
Cost/Revbenue

2500
2000
1500
1000
500
0
0 50 100 150 200 250 300 350
Quantity

Marginal Cost Marginal Revenue

 On Day 1, the gap between marginal cost and marginal Revenue was too
high(Marginal Cost on being higher side).Thus in the remaining six days
although marginal revenue was higher than the marginal cost, we
couldn’t reach our profit maximization
 From the above graph, we see that if we continue our business for a
longer time then we would have definitely made profit. As except on day
1 all the other days our Marginal Revenue was much higher than our
Marginal Cost.