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

Accident proneness, Accident proneness  A personal psychological issue w...

Accident proneness  A personal psychological issue which affects the individual's probability of suffering the accident. The concept has been studied statistically under the num

Calculate the length of the rope, The tension, T, in the tow rope pulling t...

The tension, T, in the tow rope pulling the car in Newtons is given in P8.  Determine the minimum length of the rope l, between A and B, so that the tension in either AB or AC equa

General algebraic and quantitative expressions, Read the following data on ...

Read the following data on the economy of Angoia and answer/respond to the questions/instructions that follow. Unless otherwise stated, the monetary figures are in real billions o

T test, What is an example of a real life situation when I would use each o...

What is an example of a real life situation when I would use each of these test

What is the probability that they all hit the target, QUESTION ONE. (a) ...

QUESTION ONE. (a) The probability that, a bomber hits a target on a bombing mission is 0.70 Three bombers are sent to bomb a particular target. (i) What is the probability

Root mean square deviation, Root Mean Square Deviation The standard d...

Root Mean Square Deviation The standard deviation is also called the ROOT MEAN SQUARE DEVIATION. This is because it is the ROOT (Step 4) of the MEAN (Step 3) o

Determine the maximum weight rounded down, Assume that the pulley at A is a...

Assume that the pulley at A is a small frictionless pulley. The cord AB is only allowed to support a maximum tension in Newtons as given in P4, and the cord supporting the block ca

Sampling error , Sampling Error  It is the difference between the value...

Sampling Error  It is the difference between the value of the actual population parameter and the sample statistic. Samples are used to arrive at conclusions regarding the p

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