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

Chi square test, who invented the chi square test and why? what is central ...

who invented the chi square test and why? what is central chi square and non central chi square test? what is distribution free statistics? what are the conditions when the chi squ

Iterative convergence of the method, You are given the differential equatio...

You are given the differential equation dy/dx = y' = f(x, y) with initial condition y(0 ) 1 = . The following numerical method is also given: where  f n = f( x n , y n )

Example of discrete random variable, Example of discrete random variable: ...

Example of discrete random variable: 1. What is a discrete random variable? Give three examples from the field of business. 2. Of 1000 items produced in a day at XYZ Manufa

Difference in goals between pca and fa, In PCA the eigknvalues must ultimat...

In PCA the eigknvalues must ultimately account for all of the variance. There is no probability,'no hypothesis, no test because strictly speaking PCA is not a statistical procedure

Determine the lower and upper fences, To study the physical fitness of a sa...

To study the physical fitness of a sample of 28 people, the data below was collected representing the  number of sit-ups that a person could do in one minute.      10    12

Index Number of formulae, discuss the mathematical test of adequacy of inde...

discuss the mathematical test of adequacy of index number of formulae. prove algebraically that the laspeyre, paasche and fisher price index formulae satisfies this test. What is

Rank correlation, Rank Correlation Sometimes the characteristics whose ...

Rank Correlation Sometimes the characteristics whose possible correlation is being investigated, cannot be measured but individuals can only be ranked on the basis of the chara

Stratified sampling, Stratified Sampling Stratified Sampling is ...

Stratified Sampling Stratified Sampling is generally used when the population is heterogeneous. In this case, the population is first subdivided into several parts (or s

Evaluate the standard deviation, Use only the rare event rule, and make sub...

Use only the rare event rule, and make subjective estimates to determine whether events are likely. For example, if the claim is that a coin favors heads and sample results consis

Package design ratings, Consider the sample of 60 package design ratings gi...

Consider the sample of 60 package design ratings given in the table below.                                    A Sample of Package Design Ratings                 (Composite S

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