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Profit Maximization, Production Possibility Curve, Demand and supply,…
Profit Maximization
different approaches
cos minimisation:-certain level of quanlity and production
revenue maximisation:-increasing total revenue by optimising prices, sales and volume
Economics of scale:-cost per unit of production decreases as production volume increases
margin analysis and long term and short term perspective
demerits
lower quality materials and lower quality labour
Process to ensure best output and price levels
Entrance sale, price, production, cost and output levels
maximise the returns
organisation generate the highest possible amount of profit with an given period
other factors such as market share growth, customer satisfaction, availability and business strategy and decision making
Production Possibility Curve
represents graphically, alternative production possibilities
The economy has to choose which goods produce and what quantities
en full employment economy More and More of one good, can you obtain only reducing the production of another good. This is due to the fact that economy is resources are limited.
It can be also called a transformation because we are shifting from one position to another
all the possibilities lie on the surface of the curve, not inside it, or outside it.
The Central problem of an economy is effectively allocates scarce resources
Due to limited availability of resources in relation to unlimited votes and needs
represent graphically, the combination of two goods or service the an economy can produce using its available resources, and technology basically represents a trade off.
How the PPC or is the key economic problems
scarcity:-reflects the limited nature of resources
choice:-the necessity of making choices due to scarcity. Economy must decide the goods to produce along the curve
opportunity cost:-helps to identify the next best alternative for when a decision is made
efficiency:-represents efficient resource alllocation. Points in the recovery present under utilisation of resources and points outside the curve represent currently unattainable goals.
Dynamic nature:-the expansion of the curve, basically to signify the economic growth
PPC serves as the visual representation of the choices, and the trade of regarding the central problem of economy to make the optimum choices about resource allocation.
Helps economists for potential for economic growth.
Demand and supply
concept of demand and supply
demand
refers to the quantity of a good or surface that consumers are willing to purchase within a given period of time at various price levels. Several factors that influence are
price of the product price increases the consumer by less governed by the law of demand
income, if peoples income increases their willing to buy more vice versa also true
Consumer preferences such as basic trends, con significantly impact the demand for a product popularity basically
population and demographics which refers to size and composition of the population which influences the demand, large population at demand
supply
refers to the quantity of services that are producers are able to offer various price levels within a period of time. Several factors that influence or
price of the product is the price increases. Then the producers are more likely to produce and more supply of it because the businesses profitable the relationship is governed by the law law supply.
Production cost the investment such as labour, raw material and technology impact the supply of the product. If the production cost lie, the supply might decrease
technology and innovation, advances and technology technology can lead to increased production efficiency
number of producers, more producers can lead to greater supply competition
government policies, regulation, taxes, subsidies, sector also impact the cost of production and hence supply government policies, regulation, taxes, subsidies, sector also impact the cost of production and hence supply
the price is determined by the point at which demand and supply curve and intercept. It is also known as market clearing price.
If the price is set up a equilibrium, then there will be a surplus of the product more than the required. Conversely if the prices set be below the equilibrium, there will be a shortage of the product as people require more and producers are producing less.
fundamental concepts that play a crucial role in determining the prices of the goods and services in a market economy
the interaction between demand and supply ultimately determines the equilibrium price and quantity in the market.
Describes the relationship between the quantity of a product that the consumers are willing to buy and the producers are willing to produce and sell.
The interact determine the process of goods and services change. Neither demand or supply can in overall dynamics of the market.
Demand Forecasting
accurate demand forecasting is crucial for the inventory management, the production planning and the resource allocation
various methods employed to compute demand forecasting
qualitative and quantitative methods
qualitative Methods:- Limited or when there are significant change in market conditions. And subjective judgement.
Market Research:-gathering data from survey
Expert opinion:-consulting the industry, Eggs, export managers et cetera
Delphi method:-structured approach involving multiple grounds of anonymous service
scenario analysis
Quantitative methods:-rely on historical data and statistical techniques. This method is more data driven.
Time series analysis:-identify pattern's strength and season using moving average is exponential smoothening and ARIIMA.
Causal methods:-examining the relationship between the demand and the influencing factors. In this linear regression and multiple regression model used
Trend Analysis:- Trends in historical data.
Seasonal decomposition like breaking the data into their individual components and machine learning techniques using neural network for large data sets, predict future partners and correlations.
A combination of qualitative and quantitative methods is often used to provide a more comprehensive and accurate demand forecast.
Appropriate method depends on factor such as data availability, the nature, product of the service and the level of accuracy required.
Additional questions
advantages of demand forecasting
increase supply chain efficiency. If we can focus not only the amount of sales that will have but also when are they likely to work then we can schedule our production in a little better manner organise the warehousing and shipping better. This enables us to have adequate materials and labour on hands throughout the year.
They helps us to better manage our warehouse and shipping needs as we have enough materials to keep our production lines running
Improve labour management liquid as sales occur and we do not have labour at that particular particular time. It might push the buyer to another vendor and we might lose that customer for good like having trained workers can decrease quality while having trained workers can increase quality control on the other hand having too many workers. I waste money as each extra worker on our staff increases, risk of a workers, compensation claim
ensure adequate cash flow :- station
process used by businesses and organisation to predict future customer demand for their products or services
involves system committing quantity of goods that are user is likely to purchase within a given specific time
Long-term production function
referred to different phases through which production process of a good or service progresses as the quantitative inputs used in production increases.
Changes affect output and productivity
Three main stages of production
Stage 1:-increasing marginal returns:-additional units of input such as labour are added while keeping a report constant. This way, the total output increases which means the marginal product of the ad is positive and
Characteristics are high levels of specialisation and division of labour. Efficient utilisation of resources and and economies of scale leading to produce average cost
stage 2 :- diminishing marginal returns:- where the imports are added, the total output continues to increase but at a decreasing rate. The marble product of iron input starts to decline
characteristics marginal product starts to decline leading to less efficient resource utilisation and the output continues to grow but the rate of growth slows down.
Stage 3 negative marginal returns :- adding more units of input causes total output to decrease here. The resources are being over utilised or mismanaged.
Characteristics are that the resources are stretch beyond their optimal capacity, overcrowding and inefficiency leading to reduced output and the marginal product becomes negative and average cost rises.
This provides a general framework, but the circumstances of production can carry according to different factors. The framework just helps us to make informed decisions about resource allocation, production, planning and cost management.
over the goals are produced is stopped within the stage and marginal production is positive and decreasing