Managerial Economics Group Assignment

“Norther Turkey Case”

Group Assignment

Quarterly Turkey Sales (Thousands of KG)

Year Qtr-I Qtr-II Qtr-III Qtr-IV Total

1995 10000 10500 10500 14000 45000
1996 10500 10500 11000 14500 46500
1997 11000 11500 11500 15000 49000
1998 11500 11500 12000 16000 51000
Total 43000 44000 45000 59500 191500

Answer -1:
Y=a+bX
b=(nΣXY-ΣXΣY)/(nΣX²- (ΣX)²)
a=(ΣY/n)-b(ΣX/n)

Q1 Q2
Year X Y XY X² Year X Y XY X²
1995 1 10000 10000 1 1995 1 10500 10500 1
1996 2 10500 21000 4 1996 2 10500 21000 4
1997 3 11000 33000 9 1997 3 11500 34500 9
1998 4 11500 46000 16 1998 4 11500 46000 16
Total 10 43000 110000 30 Total 10 44000 112000 30
ΣX ΣY ΣXY ΣX² ΣX ΣY ΣXY ΣX²

Q3 Q4
Year X Y XY X² Year X Y XY X²
1995 1 10500 10500 1 1995 1 14000 14000 1
1996 2 11000 22000 4 1996 2 14500 29000 4
1997 3 11500 34500 9 1997 3 15000 45000 9
1998 4 12000 48000 16 1998 4 16000 64000 16
Total 10 45000 115000 30 Total 10 59500 152000 30
ΣX ΣY ΣXY ΣX² ΣX ΣY ΣXY ΣX²

Qtr. a b Forecast-1999 Forecast-2000

Q1 9500 500 12000 12500
Q2 10000 400 12000 12400
Q3 10000 500 12500 13000
Q4 13250 650 16500 17150
 Managerial Economics Group Assignment
Year Qtr-I Qtr-II Qtr-III Qtr-IV Total
1995 10000 10500 10500 14000 45000
1996 10500 10500 11000 14500 46500
1997 11000 11500 11500 15000 49000
1998 11500 11500 12000 16000 51000
1999 12000 12000 12500 16500 53000
2000 12500 12400 13000 17150 55050
Total 67500 68400 70500 93150 299550
The “Least Square Regression” technique is used to calculate the forecasting for 1999 & 2000. As, it is one of
the best suitable methods to forecast demand when a linear trend is in the data. We have been given sales
data history and time, hence LSR fits here for the calculations.
One of the disadvantages of LSR is that, Test statistics might be unreliable when the data is not normally
distributed.

Answer-2:
Year Qtr-I Qtr-II Qtr-III Qtr-IV Total
2001 13000 12800 13500 17800 57100
As per forecast, the demand in Qtr.- 2001 turned out to be 17800,000 KG, and the present capacity is
17500,000 KG. Hence, to meet the demand of Qtr-4 the firm capacity should be increased before Qtr-4.
However, expansion of firm would require 3-4 Months to stabilize the production and to run on full swing. Thus,
management should proceed with the plan in somewhere July’2001.

Answer-3:

Given Annual Turkey demand/Capita,

Q= 7.00-10.0PT+2.0PC+1.0PB+0.50PP+0.0003I …. ①
Taking, First Order Derivative on Both sides w.r.t. price of Turkey,
 dQ/dPT= -10
 P/Q*dQ/dPT = -10*P/Q

At P=$50/Kgs and Q = 1(Obtained by putting the corresponding prices in Equation①)

We get Elasticity = ɛ = P/Q*dQ/dPT = -500
Now using the formula for Mark-up,
P = MC/ (1+1/ ɛ)
Putting P = $50/Kgs and ɛ = -500,
 MC = $ 50; Mark-up = 1.0002

As Mark-up is 1, consumption of Turkey has no monopoly over other meat products. That is, it behaves like
perfectly competitive.
In perfectly competitive market, P=AR=MR ……. ②
So, MR=P=$50/Kgs
So, we get MR=P=$50/Kgs=MC
 Managerial Economics Group Assignment
 MR=MC. This is the profit maximization condition.

So, we can conclude that the current price of $50/Kg is the Profit Maximization price.

Answer-4:

The annual consumption of Turkey/Capita is given by the equation,

Q= 7.00-10.0PT+2.0PC+1.0PB+0.50PP+0.0003I …. ①
Where I = per capita Income.
Hence the management can infer from this that demand for Turkey is dependent on the per Capita Income of
Individuals. That is, the consumption of Turkey increases when the per capita income (General Economic
Condition) increases and vice versa.

Answer-5:

Given Consumption curve of Turkey,

Q= 7.00-10.0PT+2.0PC+1.0PB+0.50PP+0.0003I …. ①
Cross Price Elasticity of Turkey Consumption w.r.t PB,
Elasticity (Q w.r.t. PB ) = 1.0*PB/Q
Elasticity (Q w.r.t. PB ) = 150
Since Elasticity is high and negative, so with 10% increase in PB the per capita demand of Turkey will increase
by 15 Kgs.
Cross Price Elasticity of Turkey Consumption w.r.t Pc,
Elasticity (Q w.r.t. PB ) = 2.0*Pc/Q
Elasticity (Q w.r.t. PB ) = 100
Since Elasticity is high and negative, so with 10% increase in Pc the per capita demand of Turkey will increase
by 10 Kgs.
Cross Price Elasticity of Turkey Consumption w.r.t Pp,
Elasticity (Q w.r.t. PB ) = 0.5*Pp/Q
Elasticity (Q w.r.t. PB ) = 75
Since Elasticity is high and negative, so with 20% decrease in Pp the per capita demand of Turkey will
decrease by 15 Kgs.
Cumulative effect of all the 3 price changes of meat, we can see that the overall demand of turkey/Capita is
expected to increase by 10 kgs (15+10-15).
Hence the forecast of sales will increase accordingly.