Simulation - analytical approach, Applied Statistics

Analytical Approach

We will illustrate this through an example.

Example 1

A firm sells a product in a market with a few competitors. The average price charged by the competitors is Rs.10. The firm can follow any one of the pricing policies given below:

  1. Match the competition price at Rs.10

  2. Price two rupees above the competition at Rs.12

  3. Price two rupees below the competition at Rs.8.

The firm knows the quantities it can sell at these prices:

Price (Rs.)

Quantity (Nos.)

  8

10

12

15,000

10,000

  7,500

The total cost of production is as below:

Quantity

Cost (Rs.)

15,000

10,000

  7,500

95,000

80,000

75,000                                          

To find out the price that the firm should charge, we must first determine the objective of the firm. Let us assume that the objective of the firm is to maximize profits. (The firm could easily have other objectives - to price the product always below the competitor's price in which case Rs.8 would be chosen or to price the product always above the competitors' price so that a higher price can be used to create the impression of a better quality in the minds of the consumers. In the latter case Rs.12 would be chosen).

To find out the price which would maximize the profits, we construct the following table:

Price (Rs.)

Sales Quantity (Nos.)

Sales Value

Cost (Rs.)

Profit (Rs.)


  8

15,000

1,20,000

95,000

25,000

10

10,000

1,00,000

80,000

20,000

12

   7,500

   90,000

75,000

15,000

We thus find that the profits are maximized at the price of Rs.8 per unit, and therefore this price should be chosen.

Though the analytical approach is quite simple and intuitive, it may not be possible to adopt this in all decision making situations. In reality, information regarding the average price charged by the competitors may not be available or may be dependent upon the price charged by the firm as the competitors may react to every change effected by the firm. The information regarding the exact quantities that can be sold at different prices may not be available or only a possible range of quantities may be known. Similarly, the cost of producing different quantities may not be exactly known.

 

Posted Date: 9/15/2012 5:33:09 AM | Location : United States







Related Discussions:- Simulation - analytical approach, Assignment Help, Ask Question on Simulation - analytical approach, Get Answer, Expert's Help, Simulation - analytical approach Discussions

Write discussion on Simulation - analytical approach
Your posts are moderated
Related Questions
The management at Superior Health Care System Incorporated recently purchased several new facilities including the central patient information management center. This purchase will

For calculating the mode of the grouped data graphically, the following procedure is adopted. Draw a histogram of the data; the modal class is the tallest rectangle.

Chemical processors manufacture wondercool using two processes- mixing and distillation. The following details relate to the distillation process for a period. No opening work i

Ten balls are put in 6 slots at random.Then expected total number of balls in the two extreme slots

Suppose both the Repair record 1978 and Company headquarters are believed to be significant in explaining the vector (Price, Mileage, Weight). Here, because of the limited sample s

Assume that the pulley at A is a small frictionless pulley. The cord AB is only allowed to support a maximum tension in Newtons as given in P4, and the cord supporting the block ca

X 110 120 130 120 140 135 155 160 165 155 Y 12 18 20 15 25 30 35 20 25 10

Arithmetic Average or Mean The arithmetic mean is the most widely and the most generally understandable of all the averages. This is clear from the reason that when the term

Testing of Hypothesis One objective of sampling theory is Hypothesis Testing. Hypothesis testing begins by making an assumption about the population parameter. Then we gather

1. Suppose you are estimating the imports (from both the U.S. mainland and foreign countries) of fuels and petroleum products in Hawaii (the dependent variable). The values of the