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
Standard Error The measure of reliability of the estimating equation that we have developed is given by standard error of estimate. The standard error of estimate represented b

Apl.send me nots on hypothesis testing sk question #Minimum 100 words accepted#

Assume that the normal distribution applies and find the critical z value(s). A = 0.04; H1 is mean ≠ 98.6 degrees Fahrenheit. Dteremine the value of Z. Find the value of the

Sequential Sampling Under this method, a number of sample lots are drawn one after another from a universe depending on the results of the earlier samples. Such sampling is gen

.what job can you after offering that course

Construct index numbers of price for the following data by applying: i)      Laspeyre’s method ii)     Paasche’s method iii)    Fisher’s Ideal Index number

For each of the following scenarios, explain how graph theory could be used to model the problem described and what a solution to the problem corresponds to in your graph model.


find the expected value of the mean square error and of the mean square reggression

According to a recent study, when shopping online for luxury goods, men spend a mean of $2,401, whereas women spend a mean of $1,527. Suppose that the study was based on a sample o