Business Economics

Answer 1.

Introduction

Demand Forecasting may be defined as a method of predicting the destiny call for, including
making plans the production method, shopping uncooked substances, coping with funds, and
figuring out charge of the products. It performs a completely critical function in an
corporation. It enables corporation to set up for the specified inputs as in keeping with the
expected call for, with-out any wastage of substances and time.

Concept

Steps involved in Demand Forecasting,

1. Specifying the goal

The reason of call for forecasting desires to be precise earlier than beginning the method. The
goal may be precise on the subsequent basis,

 Short time period or long time call for product.

 Industry call for or call for unique to an corporation.
 Whole marketplace call for or call for unique to a marketplace segment.

2. Determining the time attitude

Depending at the goal, the call for may be forecasted for a brief period (up to at least one
year) or lengthy period (past 10 years). If an corporation plays lengthy-time period call for
forecasting, it desires to think about consistent adjustments with inside the marketplace as
nicely the economy.

3. The Scope of Demand Forecasting

The scope of call for forecasting relies upon the operated vicinity of the organization, gift as
nicely as what's proposed with inside the future. Forecasting may be at an international
degree if the vicinity of operation is international. If the organization substances its services
and products with inside the neighbourhood marketplace then forecasting can be at
neighbourhood degree.
The scope must be determined thinking about the time and fee worried with regards to the
gain of the records received thru the take a look at of call for. Cost of forecasting and gain
flows from such forecasting must be in a balanced manner.

4. Sub-dividing the undertaking

Sub-dividing the undertaking into homogeneous groups, consistent with product, area, sports
or consumers. The discern of income forecasting will be the sum general of the income
forecasts of all of the groups.

5. Identify the variables

The unique variables or elements affecting the income need to be diagnosed in order that due
weight-age can be given to the ones unique elements.

6. Making a Choice of Method for Demand Forecasting:

Once the goal is ready and the time attitude has been precise the technique for performing the
forecast is selected. There are numerous techniques of call for forecasting falling below
categories; survey techniques and statistical techniques.

The Survey technique consists of client survey and opinion ballot techniques, and the
statistical techniques encompass fashion projection, barometric and econometric techniques.
Each technique varies from each other in phrases of the reason of forecasting, sort of statistics
required, availability of statistics and time body inside which the call for is to be forecasted.
Thus, the forecaster need to choose the technique that first-class fits his requirement.

7. Collection of Data and Data Adjustment:

Once the technique is determined upon, the subsequent step is to gather the specified
statistics both number one or secondary or both. The number one statistics are the first-hand
statistics which has never been accumulated earlier than. While the secondary statistics are
the statistics already to be had. Often, statistics required isn't to be had and subsequently the
statistics are to be adjusted, even manipulated, if essential so one can construct a statistics
regular with the statistics required.

8. Study of correlation among income forecasts and income merchandising plans

Making the forecast reliable, the income merchandising plans such as advertising, private
selling and different income programmes have to be reviewed. A take a look at of correlation
among income forecasts and income merchandising plans have to be made so as to set up
their position in selling the income.

9. Competitors sports

Volume of income of a organisation is essentially laid low with the sports of competition and,
therefore, the forecaster ought to additionally take a look at the competition’ sports, policies,
programmes and strategies.

10. Preparing very last income forecasts

The initial income forecasts discern have to be reviewed and very last income forecast figures
have to be arrived at after making all adjustments.

11. Estimation and Interpretation of Results

Once the specified statistics are accumulated and the call for forecasting technique is
finalized, the very last step is to estimate the call for for the predefined years of the period.
Usually, the estimates seem with inside the shape of equations, and the end result is
interpreted and supplied with inside the smooth and usable shape. Thus, the goal of call for
forecasting can most effective be finished most effective if those steps are accompanied
systematically.

Thus, the objective of demand forecasting can only be achieved only if these steps are
followed systematically.

Answer 2.

Introduction

Total Fixed Cost (TFC) - The total amount of money spends on fixed factors of production
is called fixed cost. It can be obtained by subtracting total variable cost from total cost

TFC = TC - TVC

Total Variable Cost (TVC) - The overall amount of cash spends on

variable elements of manufacturing is known as overall variable value. It may be acquired via
way of means of subtracting overall fixed value from overall value. TVC reflects
diminishing marginal productivity as greater variable enter is used, output and
variable value will growth. As the extra variable enter ends in a
smaller growth in manufacturing (diminishing marginal productivity), a business
have to spend greater on variable inputs to provide one greater unit of output.

TVC = TC - TFC

Total (TC) - The total amount of money spends on all the factors fixed and variable of
production is called total cost. It can be obtained by summing up total fixed cost and total
variable cost.

TC = TFC + TVC

The relationship amongst TC TFC and TVC is as under-When output is 0 variable expenses
also are 0 however even then constant expenses are nonetheless incurred. Thus at a 0 degree
of output general constant value and general variable expenses are identical. As output will
increase general constant expenses continue to be regular however general expenses and
general variable expenses is going on increasing. An boom in TC shows an boom in TVC
best as TFC continue to be same. Thus the distinction among TC and TVC is identical to
TFC.

Average total cost (ATC) - ATC that is price of manufacturing; a few similarity to
breakeven rate in that general price is split by anticipated manufacturing; however in place of
thinking about simplest one stage of manufacturing, we're thinking about numerous tiers of
manufacturing at one time.

ATC is sum of AFC and AVC; ATC = AFC + AVC; or ATC = TC/y

Average fixed cost (AFC) - TFC is the value of every unit of manufacturing because of
constant value; notice that as the quantity of output increases, the AFC decreases; as soon as
the organization reaches most manufacturing, and the organization moves into degree III,
AFC retraces its curve.

AFC - TFC/Q
where, Q is Quantity

Average variable cost (AVC) - TVC is the value of every unit of manufacturing because of
variable inputs; at low ranges of manufacturing, AVC is decreasing, it's going to attain a
minimal then increase; that variety of growing AVC corresponds to degree II of the
manufacturing function.

AVC - TVC/Q
where, Q is Quantity

Concept

Quantity Total Total Total Average Average Average Marginal

(Q) Fixed Variable Cost TC Fixed Variable Total Cost (TC
Cost Cost = (TFC + Cost Cost Cost - TC)
(TFC) (TVC) TVC) (TFC/Q) (TVC/Q) (TC/Q)
0 100 0 100 0 0 0 0
1 100 20 120 100 20 120 20
2 100 30 130 50 15 65 10
3 100 40 140 33.33 13.33 46.66 10
4 100 50 150 25 12.5 37.5 10
5 100 60 160 20 12 32 10

Conclusion

From the above table, we calculated Total Cost (TC), which keeps increasing when Fixed and
Variable costs are increased. Average Fixed Cost keeps decreasing when the quantity is
increased and fixed cost is constant. Similarly, average variable cost keeps decreasing when
the quantity and variable cost are increased. Later, we have also calculated Average total cost
which is decreasing when quantity is divided by total cost. Finally, we have calculated
Marginal Cost, which is constant after particular total cost since it is calculated by subtracting
total cost from previous total cost.

Answer 3.

Q = original quantity demanded

Q1 = New quantity demanded

Q = Q1 - Q
 Y = Original Income

Y1 = New Income

Y = Y1 - Y

a)

Introduction

The income elasticity of demand refers back to the sensitivity of the amount demanded a
positive exact to an alternate in the actual earnings of clients who purchase this exact.

The method for calculating the income elasticity of demand is the percentage alternate in the
amount demanded divided by the percentage alternate in earnings. With earnings elasticity of
call for, you may inform if a selected exact represents a need or a luxury.

Concept

Y = 20,000

Y1 = 25000

Y = 25000 - 20000 = 5000

Q = 40 Units

Q1 = 60 Units

Q = 60 - 40 = 20

The formula for calculating the income elasticity of demand is,

Ey = Q* Y

Y Q

Substituting the Values,

Ey = 20/5000 * 20000/40

= 0.2 (<1)

Since the income elasticity of demand is less than 1 i.e., 0.2 than its a necessity good.
b)

Introduction

Price elasticity of Demand is the size of the extrude with inside the intake of a product with
regards to an extra in its rate.

Economists use rate elasticity to apprehend how to deliver and call for a product to extrude
while its rate changes. Like call for, deliver additionally has an elasticity, called rate elasticity
of delivering. Price elasticity of delivery refers to the connection between extrude in delivery
and extrude in rate. It’s calculated by dividing the proportion extrude in the amount provided
through the proportion extrude in the rate. Together, the elasticity's combine to decide what
items are produced at what prices.

Concept

P = 500

P = 100 (a fall in price, 500 - 400 = 100)

Q =20000 units

Q = 5000 units (25000 - 20000)

By substituting these values in the above formula, we get,

Ep = 5000/100 * 500/20000

=2500000/2000000

= 1.25

Thus the absolute value of price elasticity of demand is greater than 1. To be more precise, if
prices will increase by 1%, the quantity demanded will decrease by 1.25%.