Economics Task

Task one:
Choose a product from that company and suggest way to increase
the demand. While analysing keep the following parameters in
mind.
• What are the factors affecting the demand of the product?
The factors on which the demand of my product depends upon is
price. If the price goes up the demand goes down and if the price goes
down the demand goes up. This is due to the fact the competitors
offer products at little less price, Demand for commercial vehicles is
expected to remain subdued over the near term. Also coupling it with
the BS-6 norms and revised axle norms COVID-19 made it worse.
The impact of COVID on the company was adverse the sales went
down due to the lockdown since the government restricted the
movement. But also when the government eased the restrictions the
sales of refrigerated trucks went up since now it was needed to
transport essential commodities. Also during the COVID lockdown
initially the spare parts were not needed since most of the service
providers were closed. It was already under slowdown pressure and
COVID-19 made it worse.
• Identify the substitute products for your product.
There are many truck manufactures available in the such as Tata
Motors, Ashok Leyland, Force Motors Etc.

• Identify the complementary products for your product.

The trucks also give free alternate service for next 5 service and also
they also offer customers spare parts while selling such as tyres.

• If the price of the product increases what will happen to the

demand?

If the price of the product increase, then the demand will decrease as
consumers would shift from SML Isuzu to other brands. The market
structure of SML Isuzu is monopolistic where there are many
competitors of SML Isuzu dealing in same products but differentiated
by the brand and quality.

• Is it possible that demand can be increased in spite of constant

prices?
No, it’s not possible since already there are many substitutes available
in the market such as Tata motors that offer aggressive pricing. But if
the market competitors increase their price then the demand of my
company will increase even If they have a constant price.

• What is the relationship of Income with the demand of your

product?
There is a direct relationship between the product price and income if
the income decreases they won’t be buying new trucks and if it
increases they would buy new trucks to expand their business and
even consider buying new trucks that are more expensive. There is a
direct relationship between income and demand of your product.

• How do you intend to increase the revenue of your company

amidst COVID 19 and how do you plan to address these issues?
The company should focus more on online advertisement and try to
attract customers and retain the old ones by online channels. They
should try to increase market reach by focusing where people require
trucks but are not available due to unavailability. They should try to
focus on regions which they are not focusing much right now. Apart
from this considering it’s a heavy vehicle manufacturer they don’t
have much window because when there was total lockdown
everything was halted and production was stopped.

Elasticity:

• If the price of your product increases by 5 %, to what extent will

the demand of your product decreases. Gustily your answer.
Since, Ep>1 for my company and there are substitutes available at the
same price and also here trucks increase a 5% price its huge so people
won’t buy at that price. Already SML Isuzu has a little higher price
than the market competitors and this will lead to dip of market share
of SML Isuzu which is already low. So, it won’t be good decision for
SML Isuzu to increase 5% unless they bring some revolutionary
technology to justify their cause of increase of the price and people
also understand and are ready to pay the extra amount.

• What is the elasticity of demand for your industry?

The Elasticity of demand is Ep>1. The industry is Heavy Vehicles
Industry which includes truck, bus and trailers.
• How do you think this relates to the price elasticity of demand
for your product?
Here elasticity of demand is ep>1. So this is a monopolistic market
structure. Prices are determined according to the competitors and then
they decide their price because everyone offers very aggressive
pricing for maximum sales and market share.

• Discuss how you can use this information when determining the
price for your product.
The price in a monopolistic market is dependent on the competitors.
You cannot have pricing more than others else many brands are
present. Also they increase and decrease according to market
competition. They follow a penetration pricing strategy which is
initially less then overtime increase when demand increases.

Task Two: Study the supply chain of your product. While

analysing keep the following parameters in mind
• How is cost of production related to supply?
If the cost of production is high, then the profitability level will be low as the
company operating in a monopolistic market structure and the product are
not necessity product. As a result, the company can’t cover the maximum
regions because of less budget and it affect the supply. Also, if they increase
product prices buyers will switch to other brands.

• How does the competition affect the supply?

The market structure of the company affects its supply because of lots of
competition in the market. The market is a monopolistic market so, the
competitors are suppling the same types of product in some regions so, it
affects the company’s sales and distribution.
• What are the factors effecting supply of your product?

 The product is not a necessity product as it is Ep>1.

 Monopolistic market structure affects the supply.

 Government restrictions affecting its supply.

 Covid-19

 Transportation

• What will happen to the supply of the product if the price rises?
If the profit rises the demand will also rise. But if only price rises the demand
will fall down, as a result the supply will affected. There is very low chance
that the company survive because in a monopolistic market consist of lots of
competition so, some other company might take place of the company.

• Is it possible for the supply of the product to increase in spite of

constant prices?
No, it is not possible to increase its supply spite of constant price because the
competitions as well as the market structure of the industry. The product is
Ep>1 so, it is not a necessity product so, if the price is constant the demand
and the supply also be constant.

• What is the price elasticity of supply for your product?

The price elasticity is Ep>1, as it is not a necessity product and it also has
many competitors in the market. It reflects that the company is operating in a
monopolistic market structure. If price of the product decreases the demand
will increase and the supply will also increase, vice-a-versa.

• How will the supply of product be affected amidst COVID 19?

a) Transportation: As SML Isuzu is a large scale company in a high
competitive market (monopolistic). COVID-19 affects them very much
because of transportation problem. In march earlier this year the whole
country was completely lockdown for 3 months, in that time the company is
facing problems as many other companies are facing in the market.

b) Lack of people to supply products: Because of the complete lockdown and

the pandemic situation employees were afraid to step out of their homes. In
that time the company were facing lack of working staffs and supply stuffs to
supply their products.

C) Lack of resources: Due to this pandemic and 3 months of complete

lockdown the company do not have the workers to produce huge amount of
products and to take an advantage over its competitors. Supply is also a
concern factor for the company.

• How is the government polices affect the supply of the product?

Enrolment Process of New companies:

– Development of new vehicles has tremendous R&D and time costs, trailed
by definite enlistment measure which has an incredibly moderate movement.
– Intervention is required from government and administrative specialists to
smooth out the enrolment measure and further enrolment should be allowed
by a sensible course of events of one year.

• Increasing Raw Material Cost:

– Increasing crude material cost pressures because of full scale monetary

components followed by high stock due to sessional request is lessening edges.

– Government should zero in on formation of bunches regions for the

compound business producing specialized evaluation crude materials under
Make in India program.

Absence of Contract Manufacturing:

– With gigantic R&D cost followed by high advancement time needed for new
vehicle, Contract Assembling can help heavy vehicle manufacturing
organizations to re-appropriate different parts of the business, which can
assist with versatility and permit the significant organizations to zero in on
vehicle manufacturing.
Task three:
Study the cost of your product. While analysing keep the
following parameters in mind
• Identify between the fixed and variable costs which they can
then use to calculate profit.
SML Isuzu take fixed cost to calculate their profit. As no company can rely on
the variable cost to calculate its profit. SML Isuzu cost are transportation cost
of raw materials, transportation of ready trucks, etc.

• Differentiate between Economic profit and Accountant profit.

Economic profit is like bookkeeping benefit; however, it incorporates
opportunity costs. Accounting profit incorporates express costs, for example,
crude materials and wages. Financial benefit incorporates unequivocal and
verifiable costs, which are inferred or credited expenses.

• Identify the breakeven point for your product/ company

Total Revenue/Sales = ₹115,929
Variable Cost = Cost of materials consumed
= 68,317
Fixed Cost = Total Expenses – Cost Of material
consumed

= 119,761-68,317
= ₹51,444
Contribution = Sales – Variable cost
=1,15,415 – 68317
=₹47098
P.V. Ratio = Contribution/Sales
= 47098/ 1,15,415
=40.8%
Breakeven Point = Fixed Cost/ PV Ratio
= 51444/40.8%
=₹1,26,088.23

• Identify if the company can benefit from economies of

scale/scope.

a) Economies of scope
SML Isuzu started producing medium and light weight trucks
along with heavy weight trucks after the sales of heavy vehicles
went up. They also started entering customised heavy vehicles.
All the raw materials needed were already present they just
needed the research before they start their production of small
and medium vehicle trucks.

b) Economies of scale
SML Isuzu started producing in large scale in heavy trucks by
stocking up their reserves and forecasting the demand and
producing to meet the future needs which resulted in lowering
the overall costs as they were producing in mass just like other
market leaders. After the sales of medium and heavy weight
went up they started to produce them in large scale along with
buses to fulfil their supply and meet demand for the customers.

Task four:
Study the competition market of your industry. While analysing
keep the following parameters in mind

• How much power do the suppliers have? What are the factors
that contribute to their bargaining power?
When there are numerous purchasers and venders of a homogeneous item, we
have a serious market (Figure 15.1 "The Competitive Market Outcome").
Harmony is at the crossing point of flexibly and request. At the balance level
of yield, family units appreciate purchaser excess, given by the stamped zone
beneath the interest bend or more the harmony cost. The excess emerges from
the way that a few purchasers are eager to address more than the balance cost
for the great.

Deciding Factors: Bargaining Power of Suppliers: -

 Number of provider’s comparative with purchasers

 Reliance of a provider's deal on a specific purchaser

 Exchanging cost (exchanging expenses of providers)

 Accessibility of providers for sure fire buy

 Probability of forward combination by providers

• How much power do the buyers have? What are the factors that
contribute to their bargaining power?
Buyers have all the power due to monopolistic market structure so there are
lots of competition in the market. And also the elasticity of demand of the
product is Ep>1 which means it is not a necessity product. So the buyer can
buy the alternate products from another competitor company.

Factors that contribute to their bargaining power: -

 Exchanging expenses of purchasers are low

  Danger of forward coordination is low

 Enormous number of provider’s comparative with purchasers

 High reliance of a provider's deal on a specific purchaser

 Exchanging expenses of providers are high

 Substitutes are accessible

 Purchaser doesn't depend vigorously on deals from providers

• How easy is it for businesses to enter the market? What are the
factors affecting the threat of new entrants?
Government licenses, licenses, and copyrights, asset proprietorship,
diminishing absolute normal expenses, and critical start-up costs are a portion
of the boundaries to section in a monopolistic market.

At the point when one provider controls the creation and flexibly of a specific
item or administration, different organizations can't enter the monopolistic
market. On the off chance that the public authority accepts that the item or
administration gave by the restraining infrastructure is essential for the
government assistance of general society, the organization may not be
permitted to leave the market.

For the most part, public service organizations –, for example, power
organizations and phone organizations – might be kept from leaving the
individual market.

• What are the substitutes for your product (or service)? How do
substitutes affect the market?
Substitutes of SML Isuzu:
1. Tata Motors
2. Force Motors
3. Ashok Leyland

Substitute products build up the competition level. If there are lots of

competitors in the market, the company or the organization won’t have the
power. Buyers have all the power and company can’t control the market
because if the company rise up their product price the demand will fall
down and the customers will buyer the substitute product from its
competitors.

• What is the intensity of the competition in the market? What

factors influence the rivalry among competitors?

 Expenses: -

Doorman brought up that there are explicit costs that influence how
exceptional the opposition in an industry gets. Costs that could build
competition incorporate high fixed costs, high stockpiling costs, and low
exchanging costs. High fixed costs will urge firms to bring down their costs.
Notwithstanding, when the costs decline, the opposition will escalate.

 Focus in the Industry: -

In the event that a specific industry has an exceptionally high number of firms
offering indistinguishable products or administrations, this will prompt more
serious force. Notwithstanding, in a syndication or oligopoly market structure
that is overwhelmed by only one or a couple of firms, there will be less
contention. Accordingly, the degree of focus in an industry assumes a gigantic
function in rivalry power.

 Pace of Market Growth: -

The rate at which the general business is developing is another viewpoint that
impacts serious force. For example, if the market is developing quickly, the
contention between firms will be less extraordinary.

A moderate development rate, in any case, increments serious force. With

moderate development, the business is exceptionally near immersion – there
aren't numerous new clients to pull in. However, on the off chance that the
market is solid, there's space for new participants and new customers. There
could even be undiscovered open doors that organizations can exploit.

 Exchanging Costs: -

Aside from fixed costs, exchanging costs additionally impact the degree of
contention between organizations. In the event that an association chooses to
go for an alternate provider from the one it has been utilizing, it will cause
exchanging costs. High exchanging costs lead to a reduction in rivalry. The
exchanging costs emerge from the way that clients have put a ton of their
assets in figuring out how to utilize a specific item.

In any case, in the event that there aren't any exchanging costs included, at
that point industry rivalry will be pretty exceptional. Markets that manage
regular shopper products are frequently the ones that have low exchanging
costs.

• Which market structure most accurately reflects the business

you are being asked to create? How will this impact your pricing
strategy?
The market Structure of the industry is monopolistic. In a monopolistic
serious market, organizations set costs for their items. Since each organization
sells an item that may be equivalent to that of another organization, each
organization can effectively set its costs. Nonetheless, these costs will be reliant
on the amount they want to create. Since there are as yet numerous makers,
this won't influence the market in general.

An organization will utilize marking, publicizing, and bundling to sell

apparently various items. Subsequently, there exist numerous costs in the
market because of separated items.

Additionally, since there are numerous contenders, a firm won't be influenced

by another association's technique. Therefore, organizations will have
command over their own costs.

• Do you think engaging in price discrimination is a good pricing

strategy given the market conditions you face? Why or why not?
No, because of thigh monopolistic market structure of the industry. Price
discrimination results reduction of demand of the product. A company can’t
set its products price on its because if they do so the products demand will
decrease data by day.