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

Hydraulic actuator design matrix, The range of actuator design parameters h...

The range of actuator design parameters have been provisionally assessed and are presented in Table (3). You are required to determine the following parameters: The circumfer

Variance, Variance The term variance was used to describe the square of...

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

Data project, Choose any published database from the internet or Bethel lib...

Choose any published database from the internet or Bethel library (such as those from the Census Bureau or any financial sites). You may opt to use one of the data files provided b

Find the conditional distribution of turning diameter, 1. Assume the random...

1. Assume the random vector (Trunk Space, Length, Turning diameter) of Japanese car is normally distributed and the unbiased estimators for its mean and variance are the truth. For

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

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

Stratified random sampling, Stratified Random Sampling: This method of ...

Stratified Random Sampling: This method of sampling is used when the population is comprised of natural subdivision of units, The method consist in classifying the population u

#regression, #regression line drawn as Y=C+1075x, when x was 2, and y was 2...

#regression line drawn as Y=C+1075x, when x was 2, and y was 239, given that y intercept was 11. calculate the residual

Collaboration policy,  Each question, by default, should be solved INDIVID...

 Each question, by default, should be solved INDIVIDUALLY, unless marked as \collaborative". Questions marked as \collaborative" implies that for those questions you are encourage

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