Simulation - analytical approach, Applied Statistics

Assignment Help:

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.

 


Related Discussions:- Simulation - analytical approach

Redundancy analysis, In reduced rank regression (RRR), the dependent var...

In reduced rank regression (RRR), the dependent variables are first submitted to a PCA and the scores of the units are then used as dependent variables in a series of

Confidence interval, for this proportion, use the +-2 rule of thumb to dete...

for this proportion, use the +-2 rule of thumb to determine the 95 percent confidence interval. when asked if they are satisfied with their financial situation, .29 said "very sat

Probability, In 120 tosses of a coin, 45 heads and 75 tails are observed. ...

In 120 tosses of a coin, 45 heads and 75 tails are observed. Is this a balanced coin? Use a=0.05. (Follow the basic steps of hypothesis testing)

Applied, Question 1 Suppose that you have 150 observations on production (...

Question 1 Suppose that you have 150 observations on production (yt) and investment (it), and you have estimated the following ADL(3,2) model: (1 – 0.5L – 0.1L2 – 0.05L3)yt = 0.7

#vital statistics, # I have to make assignment on vital statistics so kindl...

# I have to make assignment on vital statistics so kindly guide me how to make and get good marks

Statistics to support learning, Scenario: Many of the years 5 and year 6 l...

Scenario: Many of the years 5 and year 6 learners' at Woodlands Park School were excited about being chosen for the cross-country team.  Every day, they were able to run laps of t

Harmonic mean, The Harmonic Mean is based on the reciprocals of numbers ave...

The Harmonic Mean is based on the reciprocals of numbers averaged. It is defined as the reciprocal of the arithmetic mean of the reciprocal of the given individual observations. Th

Flow chart for confidence interval, Flow Chart for Confidence Interval ...

Flow Chart for Confidence Interval We can now prepare a flow chart for estimating a confidence interval for μ, the population parameter. Figure

Evaluate gross reproduction rate, Evaluate Gross Reproduction Rate: Fr...

Evaluate Gross Reproduction Rate: From the data given below compute : i)   General  Fertility  Rate ii)  Specific  Fertility  Rate iii)  Total  Fertility  Rate iv)

Decision theory, 1. Definition of decision tree, 2. Feature of decision the...

1. Definition of decision tree, 2. Feature of decision theory problem

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

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!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd