Answer 1

Total Revenue Marginal Average

Quantity (TR) Revenue (MR) Revenue
S.No. Price (P) (Q) Elasticity of Price ep TR = Q x P MRn = TRn- TRn-1 AR=TR/Q

1 6 0 - 0 0 -
2 5 100 5 500 500 5
3 4 200 2 800 300 4
4 3 300 1 900 100 3
5 2 400 0.5 800 -100 2
6 1 500 0.2 500 -300 1
7 0 600 0 0 -500 0

Elasticity of Price, Total Revenue & Marginal Revenue can be calculated from the below formula
ΔQ P
ep = — x —
ΔP Q

Total Revenue i.e. TR = Q x P

Marginal Revenue i.e. MRn = TRn- TRn-1

 For the first row the change in Quantity ΔQ = 0
Change in price is ΔP= 6
Price i.e. P =6 & Quantity i.e. Q =0

0 6
ep = — x —
6 0

ep =Undefined
 TR= 6 x 0
=0
MRn = 0 - 0
=0

 For the second row the change in Quantity ΔQ = 100

Change in price is ΔP= 1
Price i.e. P =5 & Quantity i.e. Q =100

100 5
ep = — x —
1 100

ep = 5

TR= 5 x 100
= 500
MRn = 500 - 0
=500

 For the third row the change in Quantity ΔQ = 100

Change in price is ΔP= 1
Price i.e. P =4 & Quantity i.e. Q =200

100 4
ep = — x —
1 200

ep = 2
 TR= 200 x 4
= 800
MRn = 800 - 500
=300

 For the fourth row the change in Quantity ΔQ = 100

Change in price is ΔP= 1
Price i.e. P =3 & Quantity i.e. Q =300

100 3
ep = — x —
1 300

ep = 1

TR= 300 x 3
= 900
MRn = 900 - 800
=100

 For the fifth row the change in Quantity ΔQ = 100

Change in price is ΔP= 1
Price i.e. P =2 & Quantity i.e. Q =400

100 2
ep = — x —
1 400

ep = 0.5

TR= 400 x 2
 = 800
MRn = 800 - 900
= -100

 For the sixth row the change in Quantity ΔQ = 100

Change in price is ΔP= 1
Price i.e. P =1 & Quantity i.e. Q =500

100 1
ep = — x —
1 500

ep = 0.2

TR= 500 x 1
= 500
MRn = 500 - 800
= -300

 For the seventh row the change in Quantity ΔQ = 100

Change in price is ΔP= 1
Price i.e. P =0 & Quantity i.e. Q =600

100 0
ep = — x —
1 600

ep = 0

TR= 600 x 0
 =0
MRn = 0 - 500
= -500

Relationship between AR & MR

In the above given table where we calculated the Average Revenue and Marginal Revenue. It has
been observed that the MR can be less than AR, equal to AR or more than AR. Marginal Revenue
can be positive, negative or zero while Average Revenue which represents the price of the goods
will always be positive.
Marginal Revenue is less than Average Revenue
MR can be less than the AR, it decreases when the AR decreases and can be seen in the table with
the calculated values. Mostly when the price of commodity decreases so the AR decreases and
then MR also decreases. In the last three rows when the AR decreasing the MR also getting
decreased and going to negative too. For example, if the company decreasing the price of goods
and so the AR decreases and it impacts the MR in a significant way.

Marginal Revenue is equal or more than Average Revenue

When the total revenue decreases the Marginal revenue also decreases while Average Revenue
denotes the price of the commodity. However, if the sale of the goods quantity is increases with
the same quantity at each interval the MR can be equal to AR. And if the price and quantity both
are increase then TR increases and so MR also increases and can be more than AR.
 Answer 2

Introduction
Demand forecasting is a method of predicting the demands of goods and services in the future
which is based on some scientific reasons and statistics and not mere the speculations. It’s crucial
for both new organization as well as the existing organization. For a new organization it requires
to manufacture the products as per the market demand while for an existing organization its
significant to fulfill the expected product sale so that it can avoid the wastage of the products and
to deliver them on time. There are two types of Demand forecasting, one is short term and the
other is long term and company perform the short term and long term Demand forecasting as per
the planning of the goods and services.

Description
On the basis of demand forecasting plenty of decisions taken such as production of the goods as
per demand, change in market behavior, managing the investments, buying raw materials, its
competitors and compare of quality of the product and price of the goods and services.
We will talk about two techniques here Qualitative and Quantitative techniques and how these
work for forecasting.
Qualitative Technique
Qualitative techniques perform the forecasting of demands based on customer behavior, surveys
and marketing study. This method often used for short term demand forecasting and when a new
product is going to launch for which there are no previous records available. Below are the
different qualitative techniques explained
 Survey Method
We can see lots of survey being done by various companies on time to time to gather the
data to anticipate the future purchase plans of consumers. Big companies such as Samsung,
LG, HP, Microsoft etc. they conduct the survey to find out the customers choice and
opinions about the product and what new feature they want to have in the upcoming
product. A survey can help the company greatly in taking the important decision about
consumer choice, quantity of sale, improvement areas etc.
In complete enumeration survey most of the potential users are contacted and asked about
their future purchase plans. And then the demand forecast is made on these received inputs
from consumers. On the other hand, in sample survey method a few of the targeted
consumers are contacted and the inputs received. In this method the average demand is
calculated which is multiplied by total number of consumers and then we get the total
number of products for which the demand to be forecasted.
  Opinion Polls
In this method the opinion is collected from the sales manager, marketing experts and
analysts. Mostly Sales force composite and Delphi method are used in conducting the
opinion polls. In sales force composite method, the sales and marketing expert from
different firms gather the data from consumers for their choice of product by asking
questions such as when will they buy, how much will they buy and the other key factors.
However, in the Delphi method the estimations and expectation of the demand forecasting
is done by other experts who are not directly associated with organizations and provide
their inputs to the sales and market experts. After accord of all the experts the final demand
forecasts is published.

Quantitative Techniques
Quantitative techniques generally used for long term demand forecasting and based upon the
historical data via using the statistical tools. There are different kind of quantitative methods as
below
 Time Series Analysis
This analysis is done by organizations based on few trends over a period of time.
Organizations use the trends to determine the potential demand of the goods and services
in near future. There are four key components used in Quantitative technique.
Secular trend
Specific conditions such as development of a new city, new technology, increase in
population, share markets variation, new industry rules by government or change in
product demand play the key role.
Cyclical Variations
There are four phases that every organization faces from beginning to efficacy. These are
prosperity, recession, depression, and recovery. For example, if there is a recession and so
the employment will decrease therefore it will decrease the expenditure of the consumer
and so it will impact the revenue.
Seasonal Variations
Any organization gets affected by the seasonal changes such as weather, festivals, rituals,
seasons and marriages. For example, in the season of winter the demand of woolen clothes
and heaters get increased.

 Smoothing Techniques
In this technique there are some random patterns are noticed in the historical data of
demand, these patterns are removed to evaluate the future demand pattern. There are two
methods in smoothing technique, Simple moving average method and Weighted average
moving method.
In simple moving average method, we calculate the overall trend of demand for a specific
period of time and forecast the upcoming demand for the next period. While in weighted
 average moving method, the present trend is given more weightage and the older data given
less importance.

 Barometric Methods
Barometric method emphasizes upon the current progress and uses certain leading
indicators to estimate the demand forecasting.
Leading Indicators
If any event is already occurred its considered as the leading indicator to predict the future
events such as last year revenue, last season sale and profit etc.
Coincident indicators
These indicators are directly dependent on the current events such as unemployment,
inflation due to high demand and the economy of the state.
Lagging indicators
These indicators dependent on the change in policy, rules, finance etc. such as real state
growth, home loan and personal loan demand, rate of interest on loans etc.

Conclusion
Some companies conduct the demand forecasting on their own and some companies hire a third-
party agency to perform demand forecasting. Organizations follow the specified techniques and
not just the speculation or estimation of the demand and sale of the products and services. As
discussed above the analysis is based on the real factors, market research, techniques, surveys,
statistics, values & formulas and past & present indicators. Therefore, demand forecasting can’t
be termed only the estimation or speculation but, on the logics, and real data.
 Answer 3

3 (a) Elasticity of Supply

Elasticity of supply used by companies to calculate the impact of change in the supply of
products/goods compared to its price. As per law of supply if the price of the product increases
then quantity supplied for a product increases too and vice versa, provided all the other factors are
kept constant. Organizations utilize this concept to determine the impact of change in the price of
a product in relation to supply of it for statistics purpose.

ΔS P
ep = — x —
ΔP S

Where, ep = Elasticity of Supply

P = Original commodity price
S = Original quantity supplied
ΔS = Change in quantity supplied
ΔP = Change in price of commodity

In the question,
ep = 2
P=8
S = 200

ΔS = 250-200
= 50

ΔP = P1 – P
= P1 – 8

Applying these values in the formula

 50 8
2= —--- x —
P1-8 200

50 8
P1 -8 = — x —
2 200

P1 – 8 = 1

So P1 = 9

Therefore 250 units will be supplied at price of Rs 9 per unit.

Answer 3 (b)

As the Elasticity of supply (ep) is

Percentage change in quantity of supply of commodity (ΔS/S)

ep= ———————————————————————————
Percentage change in price of commodity (ΔP/P)

Percentage change in the price of the soya bean oil = 15 %

ΔS
Percentage change in quantity of supply of commodity = — x 100
S
345-300
= ———— x 100
300
= 15
15

ep = ———

15

ep =1