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Management Economics Assignment

   

Added on  2020-01-16

18 Pages6881 Words157 Views
Management economics1

Table of ContentsINTRODUCTION................................................................................................................................3TASK 1.................................................................................................................................................3A. Prediction of change in sales.......................................................................................................3B. Comment on rise or fall in revenues............................................................................................4C. Elasticity of income and its importance for management............................................................5D. Calculation of TR, AR, MR, TC, AC, MC and profit..................................................................74. Profit and output combination of maximum profit.......................................................................8F. Profit-maximising and average cost minimising price/output combination...............................10PART B...............................................................................................................................................11CONCLUSION..................................................................................................................................15REFERENCES...................................................................................................................................162

INTRODUCTIONEconomics refers to the process of production, manufacturing, distribution and consumptionof offered products and services. In every nation, businesses produce various types of goods to meettheir consumer demand by delivering required goods. Establishments set their product prices bytaking into account two elements that are demand and supply. As per the law of demand, both theprices and demand are adversely related to each other, henceforth, rise in prices results in decliningdemand or vice-versa. Although, there is negative relationship exists between demand and prices,but still, by what percentage demand will be decrease with the increase in prices is greatly dependsupon the elasticity of demand. Therefore, this assignment report demonstrates various types ofelasticity such as elasticity of demand, income elasticity and so on to make more viable andstronger decisions. Along with this, the project will also determine the most appropriate price/outputcombination at where cost is minimum and profit is maximum. Despite this, second part of theassignment demonstrates various types of economic system that are monopoly, oligopoly, perfectcompetition and others with suitable examples of either the national or international company forevidence. It will enable assist reader to gain an in-depth understanding of different kind ofeconomies, characteristics and pricing decisions as well. TASK 1According to the scenario, TSG Pharma manufactures an antibiotic product, TSG caplets todeliver superior quality services to the public. Now, firm wants to predict or estimate changes insales for the upcoming period so as to identify that whether price will goes increase or decrease infuture. A. Prediction of change in salesElasticity of sales in connection to the change in population entails the relationship betweentwo variables that are population and sales revenue as well. It helps businesses to identify that bywhat percentage sales will go upward or downward with the increase or decrease in local population(Sekizaki, Nishizaki and Hayashida, 2016). It can be computed using following formula,represented hereunder:Elasticity of sales = Percentage (%) change in sales/ Percentage (%) change in populationCited scenario demonstrates that elasticity of sales with respect to the local population is 0.8.It means that each % age increase in population will maximize total sales revenue by 0.8%. In otherwords, if population rises by 100% then with the high level of population, turnover will go up by80%. The main reason behind this is with the increase in overall population, public demand will be3

increase as more and more public will demand company’s products to meet their expectations(Wang, Ibarra and Pantelides, 2016). However, on the other side, if population goes decrease overthe period, then it will results in decrease in demand. Scenario presented that if population goes increase from 130,000 to 140,000 then % changein population will be computed as follows:% change in popn = New population – Old population/(Old population)*100= (140,000 – 130,000)/130,000 *100 = 7.69%Elasticity of sales = Percentage (%) change in sales/ Percentage (%) change in population0.80 = % age change in sales/7.69% age change in sales = 7.69*0.80% age change in sales = 6.15%Thus, as per the analysis, it has been founded that with the increase in local population by7.69% from 130,000 to 140,000, TSG Pharma manufactures product price will be increased by6.15%. It is because, now, more consumers will desire to buy TSG caplets to meet theirexpectations. Rise in sales will help firm to maximize their revenues and result in high profitability.Thus, company can maximize their operational performance and strengthen their competitiveposition to gain sustainable advantage. B. Comment on rise or fall in revenuesElasticity of prices, shortened to EP indicates that whether quantity of sales item wills goesupward or downward with the decrease or increase in product prices. As stated earlier, that law ofdemand entails that with the inflated prices, consumer demand goes decrease (Sandoval and Carpio,2016). The reason behind this, is at higher price, less proportion of overall population will be able tobuy TSG pharma manufactures’s products may be due to less affordability, employment level,saving and disposable income as well. EP always ranges between the value of zero to one, zero is asign of inelastic demand, however, 1 indicates perfect elastic. On the other side, a product thatprevails between these range indicates more or less elastic goods. Price elasticity of demand (Ep) = % age change in demanded quantity/(% change in product price)Ep = - 1 < Ed < 0Scenario presented that current price of the item is 7.50 GBP for each pack of TSG caplets ata price elasticity of -0.85. It means that 1% increase in price will decrease market demand by0.85%. Now, managers are concern that if they raise prices to 8.50 GBP, then % age change will beas follows:4

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