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.
Woody Construction is considering a new 3 year expansion project that requires an initial fixed asset investment
how would you judge the potential profit of Bajaj Electronics on the first year of sales to booth plastice and give your views to to increase the profit
Advantages and Disadvantages of Investing in Gilts Advantages As the security is issued by the GOI, it has a minimal default risk. Investors have the opportunity to inves
Q. Definition of Capital Budgeting? Capital Budgeting is the procedure of making decisions for investment in long-term assets. It is a method of deciding whether or not to inve
Agency Mortgage-Backed Securities (AMBS) are securities that are backed by the mortgage loans. These securities include mortgage passthrough securities, stripped
Inventory is sometimes thought of as a necessary evil. Explain. Inventory ties up funds and these funds aren't earning an unambiguous return. Some inventory is habitually nec
Question 1: (i) How are education and economic growth connected? (ii) Explain how the export promotion trade strategy may be more growth promoting for developing economies,
Define Hedger - Market Participants A hedger desires to prevent price variation by locking in a purchase price of the underlying asset by a long position in a futures contract
Investment Strategy OF HEDGE FUNDS After the Funds are raised from genuine investors, the next step for Hedge Funds is to invest them as per the investment objectives and strat
Define intermediation The financial system makes it probable for surplus and deficit economic units to come together, exchanging funds for securities, to their mutual advantage
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