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Show Me The Money & Confidence Building PDF
Show Me The Money & Confidence Building PDF
SHATAKSHI SHARMA
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We will be solving practical challenges through MBA concepts. No theory only applications!
1. What is the value of your input at which your business can hit
maximum profits?
Q: The input (or quantity to produce) leads to output (revenue). The manufacturing head or ecommerce
head might have asked you what is “that” input quantity value at which we can maximize profits? If your
boss doesn’t think like that, there is a scope for your promotion: p
A: There is a science to it and a little bit of Math (don’t get scared). We all know that Profits= Revenue-
Costs. To get maximize profits, you need to take 1st degree differential and equate to 0. Right ?
(If not, please stop and recall high school Maths )
Meaning 0= dR-dC, whereby differential or marginal costs (MC)= marginal revenue (MR) is the
condition at which we can maximize profits. Marginal cost is the increase in cost by producing one more
unit of the good while marginal revenue is the change in total revenue as a result of changing the rate of
sales by one unit.
Ok that’s it. No more Math. What does the above mean in business language ? Think of the opposite of
the above condition, what if MR is not = MC, then:
If, MC < MR, then for each additional unit produced, revenue will be higher than the cost so that you will
generate more.
Else, MC > MR, then for each extra unit produced, the cost will be higher than revenue so that you will
create less.
Read above sentences twice more and slowly. It shall hit you. Now what ? Go and get the cost and
ti (lik th d d bl li ) f f t i h d
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revenue equations (like the red and blue lines) from your manufacturing heads.
Q: So your boss asked how confident are you in the mean value reported from your sample survey ?
Imagine you have collected data points from the respondents and plotted it. If it’s a normal curve, it should
look something like this graph. But wait Shatakshi, what if it doesn’t look like that ?
Well there’s a magic wand. Its called CLT: Central Limit Theorem. It says that the distribution of the
sample mean (this is what you care about) – will be normal when the distribution of data in the population
is normal or nearly normal which is mostly the case when computing average or mean.
CLT can be invoked
Each data point in the sample is independent of the other (last class learning)
The sample size is large enough • A sample size of 30 is usually considered large enough but there
are more precise conditions, Adequate sample size depends on the distribution of data – primarily
its symmetry and presence of outliers
But Shatakshi, its getting too technical and you promised otherwise. Well, yes wait. We are almost there.
Assuming you took a large enough sample, you can invoke CLT and tada: there will be normal curve.
What is confidence intervals? My question to you back would be what do you think will happen if we took
another random sample with different respondents?
Thus, you rather get a range of your sample mean with certain confidence than doubtful objective answer.
It is basically a range of values that you report by saying with 95% confidence that the value will be within
range of [X,Y]. The confidence level can also change lets say 99%, and the range of your confidence bands
would increase and scope of error would decrease as obviously you are 99% confident about the mean
now. You can easily change these numbers in the software.
Now recall how GDP of the country is reported: We estimate that actual growth may have been about 4½
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y p g y
percent with a 95 percent confidence interval of 3 ½ -5 ½ percent.
It is basically about getting precise in your answer. Why is precision needed ? Its needed for better
monitoring. Why is monitoring needed ? Because what gets monitored gets done !
Note: I’m not an expert in any of these fields neither do I claim to be. MBA teaches common sense and
exposes you to the science and tools that you were not aware of before. My goal is the same here and
reach to people who wish to up-skill further.
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sivapragasam Sep 13
Dear Shatakshi Sharma, I am so happy to learn concepts presented in a very simple manner. Keep
educating us. Thanks
anand92m Sep 14
Hi Shatakshi,
In the second question of this post, when you say that for a 99% confidence level "the range will squeeze
in", doesn't the range actually get a little bigger, accommodating more acceptable values ?
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jain.pulak95 Sep 16
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