Already have an account? Get multiple benefits of using own account!
Login in your account..!
Remember me
Don't have an account? Create your account in less than a minutes,
Forgot password? how can I recover my password now!
Enter right registered email to receive password!
MARGINAL ANALYSIS
It is difficult to develop the conditional profit table when there are a large number of scenarios and possible actions. The marginal analysis approach sidesteps an unmanageable conditional profit table. We will illustrate the procedure and its advantages through the following example.
Example
The fresh from the fields, vegetable and fruit wholesalers buys, produce and then sells to retailers. Currently, green peas are available. The wholesaler pays Rs.200 per box of peas. A box sold on the same day fetches Rs.300, otherwise it has a salvage value of Rs.50. Historical data has established the following demand for green peas.
Number of boxes
21
22
23
24
25
26
27
28
Probability
0.07
0.08
0.10
0.11
0.29
0.20
0.09
0.06
The wholesaler has decided to stock the optimal number of boxes based on the expected profit criterion.
Let us solve the problem using the conditional profit table. Note that the profit generated by the sale of one box is Rs.100 and the loss incurred on an unsold box is Rs.150.00.
Conditional Profit Table
Stocking level
Daily Demand
Expected profit
21(0.07)
22(0.08)
23(0.10)
24(0.11)
25(0.29)
26(0.20)
27(0.09)
28(0.06)
2100
1950
1800
1650
1500
1350
1200
1050
2200
2050
1900
1750
1600
1450
1300
2300
2150
2000
1850
1700
1550
2400
2250
2500
2350
2600
2450
2700
2550
2800
2100.00
2182.50
2245.00
2282.50
2292.50
2230.00
2117.50
1982.50
From the table, we see that the optimal stocking level is 25 (which generates the maximum expected profit of Rs.2,292.50).
As it can be seen, this approach is tedious and the conditional profit table is bound to become unmanageable.
Buying and Selling Securities One of the key features that may occur while investing in financial markets is that sometimes investors overlook the essential factors they should c
A mortgage, is sold to the SPV at the discretion of the bank to securitize it into a mortgage backed security, that is, the mortgage is said to
What is the role of investment banking in investment intermediaries? Investment banks: These banks assist corporations or governments into the issue of new debt or equity
Q. What do you mean by Letter of Credit? A letter of credit is an arrangement whereby a bank helps its customer to obtain credit from its (customer's) suppliers. When a bank op
QUESTION 1 Discuss the role and contribution of the procurement function in an organisation. QUESTION 2 Discuss the main objectives of purchasing negotiations. Compare
The potato chip industry in the Northwest in 2007 was competitively structured and in long-run competitive equilibrium; firms were earning a normal rate of return and were competin
How can we measure Total return- Measuring the Rate of Return Total return can be defined as: Total returns = (Cash payment received + Price change over the period) / Purcha
Prices of Calls and Puts Options the shares of Marks & Spencer a) Explain carefully why the November calls are trading at higher prices than the September calls. b) Draw
Routine functions For the efficient execution of the managerial finance functions, routine functions have to be executed. Such decisions concern procedures and systems and incl
Q. What do you mean by Business Risk? Business risk is that portion of the unsystematic risk caused by the operating environment of the business. Business risk arises from the
Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!
whatsapp: +91-977-207-8620
Phone: +91-977-207-8620
Email: [email protected]
All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd