objective : Produce a product

=>Uncertainity :

 Response of market

=>Success of project :

1. Scenario 1 : Moderate appeal to customer at moderate price

2. Scenario 2 : Strong appeal to large segment of market: highly price sensitive
3. Scenario 3 : Product appeal to small segment of market: which is willing to pay high price

Initial investment same, selling price different

At scenario 1:

Demand moderate

At scenario 2:

String appeal, price sensitive, reduce price from high to low,

At scenario 3:

Approach to market at high price

(NPV)Revenue= number items* item cost

Varying : price of unit, number of units

(pg392)Breaking an analysis:You are doing a project, how much you should produce and sold,so that
project does not lose money

Breaking an analysis = total investment (i.efixed cost+depreciation)/contribution margin ratio

Contribution margin ratio: every unit of gain of cells, how much money you make out of that

cells price - variable cost=making money

Scenario analysis= depends onmultiple factors

Sensitiveanalysis=one factor depends (total investment is fixed mostly)

Risk Management:

Lots of risk reduction strategy are involved:

1. Fixed and variable cost:

fixed cost- doesn’t depend on how many units (ex- initial investment)
variable cost - depend on how many units
Always better to reduce fixed cost
break through level=Number of units required to be safe, depends on how much you earn from
unit selling
Keep break through level low
2. Pricing strategy: how much pricing changes for profitability, how pricing increases demand(low
price increase demand, but it increase breaking point
3. Improve ….: improve technology in market,
4. Long term arrangements: to reduce risk, long term contract to employers , customers, industrial
companies, factories,
dis advantage: when workers are contracted for 6 months , but due to pandemic (or natural
problems) they cannot work, contracts were invalid
5. Strategic allowance: 2 or more companies make a strategic join venture , so that they can have
their both resource to reduce risk to both,( ex- power plant and cement plant are joint venture),

(pg500)Social cost benefit analysis (SCBA):

Ex -Bokaro place- whole area is urbalised

1. In SCBA ,the focus is on the soscial cost and benefit of the project, this differs from monitory
cost and benefits of the project,
and the principle sources of discripitance:
i. Market imperfections
ii. Externalities
iii. Taxes and subsidies
iv. Concern for savings
v. Concern for redistribution
vi. Merit wants

Syllabus for test 2: after cost of production and before SCBA