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
Question: A car was machine washes each car in 5 minutes exactly. It has been estimated that customers will arrive according to a Poisson distribution at an average of 8 per hour.

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

Index Number Meaning and Definitions of Index Number The index numbers are the special type of averages which are presented in percentages and computed on certain base.

Correlation The board of directors of Bata Company is faced with the problem of estimating what the annual sales might be in a shop to be opened in Bagpur where Bata has not op

Variance The term variance was used to describe the square of the standard deviation by R.A.Fisher. The concept of variance is highly important in areas where it is possible to

Given a certain population there are various ways in which a sample may be drawn from it. The chart below illustrates this point: Figure 1 In  Judgem

the sum of mean and variance ofabinomia distribution of 5 trials is 9/5, find the binomial distribution.

Dr. Jim Mirabella UNIT EIGHT: DATA ANALYSIS PROJECT All Excel output should be copied into a single Word document where you must enter all of your responses to the questions below.

use of quantitative techniques in public sector

Correlation The correlation is commonly used and a useful statistic used to describe the degree of the relationships between two or more variables. Pearson's correlation refle