NMIMS Global Access

School for Continuing Education (NGA-SCE)

Course: Business Economics

1. Demand forecasting is not a speculative exercise into the unknown. It is

essentially a reasonable judgement of future probabilities of the market events
based on scientific background. Explain the statement by elaborating different
qualitative and quantitative methods of demand forecasting. Which of the
methods described by you is most suitable for forecasting the demand for
“expensive mobile” and why? (10 Marks).
Solution: Demand forecasting is not a speculative exercise into the unknown. It is
essentially a reasonable judgement of future probabilities of the market events
based on scientific background.
Guaging of interest is the craft of foreseeing interest for an item or administration at
some future date. Thus it assumes a vital part during the time spent arranging and basic
leadership at miniaturized scale and additionally full scale level. Extension of yield of the
firm ought to be founded on the appraisals of likely request, generally there might be
over generation and misfortunes may must be confronted. For controlling the business
on a sound balance, it is fundamental to have legitimate planning of expenses and
benefits that depends on determining. So also, a palatable control of business
inventories crude materials, semi-completed items, completed items, save parts
requires acceptable evaluations of future necessities, which can be followed through
request estimating. Request anticipating at large scale level is of awesome help to the
organizers and approach creators for better arranging and levelheaded portion of
nation's assets. However, it isn't idiot proof and right yet it helps in assessing different
powers which influences request.

Qualitative and quantitative methods of demand forecasting

Qualitative Forecasting Methods: The subjective (or judgmental) approach can be
valuable in planning here and now figures and can likewise supplement the projections
in view of the utilization of any of the quantitative strategies. Four of the better-known
subjective determining strategies are official assessments, the Delphi strategy, deals
compel surveying, and buyer overviews:
1) Executive Opinions: The subjective perspectives of officials or specialists from
deals, creation, back, buying, and organization are found the middle value of to
produce a figure about future deals. Generally this strategy is utilized as a part of
conjunction with some quantitative technique, for example, drift extrapolation.
The administration group adjusts the subsequent gauge, in light of their desires.

2) Delphi Method: This is a gathering procedure in which a board of specialists is

addressed separately about their view of future occasions. The specialists don't
meet as a gathering, with a specific end goal to lessen the likelihood that accord
is achieved on account of overwhelming identity factors. Rather, the conjectures
and going with contentions are abridged by an outside gathering and came back
to the specialists alongside additionally addresses. This proceeds until the point
when an accord is come to.

3) Sales Force Polling: Some organizations use as a conjecture source sales

representatives who have ceaseless contacts with clients. They trust that the
sales representatives who are nearest to a definitive clients may have critical bits
of knowledge with respect to the condition without bounds advertise. Estimates in
light of offers compel surveying might be arrived at the midpoint of to build up a
future figure. Or then again they might be utilized to adjust other quantitative or
potentially subjective figures that have been produced inside in the organization

4) Consumer Surveys: Some organizations direct their own market reviews with
respect to particular customer buys. Studies may comprise of phone contacts,
individual meetings, or surveys as a methods for acquiring information. Broad
measurable examination typically is connected to review brings about request to
test theories with respect to buyer conduct.

Quantitative forecasting methods

Using quantitative approach, a company forecasts based on:
1) Historical data forecasts – Grouped under historical data forecasts are the
followings:
 Naive methods
 Moving average
 Exponential smoothing
 Trend analysis
 Decomposition of time series

2) Associative (causal) forecasts – Grouped under the associative forecasts are

the followings:
 Simple regression
 Multiple regression
 Econometric modelling

The most suitable for forecasting the demand for “expensive mobile is the
qualitative method:
The present innovative advancement and worldwide rivalry in business sectors, requires
providers of items and administrations to acquaint new items or with enhance their
present items keeping in mind the end goal to survive. Quick mechanical improvement
in the cutting edge area additionally influences this worldwide rivalry considerably
harder for firms in the present market to put, since innovation progresses have
abbreviated the life cycle for some items. Request determining is essential for firms
working in this condition who need to settle on choices identifying with future creation
limit, advertising spending plans, human asset arranging, and innovative work. This is
particularly valid for pre-dispatch gauges of interest time arrangement where items have
a short life cycle. Be that as it may, creating such conjectures is a troublesome, mind
boggling and testing errand mostly due to the inaccessibility of past information and
short life cycles of prior items.

Some of the sales forecasting methods for mobile phone are mentioned below:
 1) Diffusion models, which are normally in view of time arrangement information
from already dispatch comparative items and accept a sigmoid-molded bend
speaking to item infiltration after some time.

2) Choice models, which depend on singular level information to research the

customer inclinations for various qualities of items and how this will influence the
decision of various conclusions introduced to the buyers.

3) Individual management judgment, which is the most widely recognized

strategy in new item deals guaging, particularly in the innovative business
because of abnormal state of vulnerability.

4) Judgments by group of managers can be likewise used to acquire diverse

conclusions and points of view with point of having more precise guaging
(Dyussekeneva et al, approaching). Techniques, for example, the Delphi
strategy, expectation markets and inclination markets can offer an organized
procedure of evoking judgments from gatherings of directors.

5) Customer intention surveys method, which include getting some information

about their probability of buying the new item.

6) Market testing and specialist base-demonstrating. In previous, a firm surveys the

acknowledgment level and achievement of another item in a sub-set market
before propelling into finish showcase. In last approach, PC programming models
mimic the activity and expectation of clients by considering pre-characterized
conduct rules

2. Which market is characterized by the “competition among few”? How is this

market different from the “competition among many”? Explain how the producers
in this kind of market promote their own interests by giving real world examples
like OPEC, Cement Cartels, etc. (10 Marks)
Solution: Oligopoly showcase is described by the "opposition among few". There are
immense contrasts amongst Oligopoly and monopolistic rivalry i.e. "Rivalry among
many" which are as per the following:
Oligopoly: It speaks to a structure, which contains a less number of moderately bigger
firms with considerable hindrances to passage of different firms. An abnormal state of
fixation is seen in the market as it is shared by a couple of firms. Firms, working in an
oligopoly showcase, don't have a great deal of rivalry. In this manner, they need to think
about the response of its nearby rivals while taking any business choice. For instance, if
Texaco intends to expand its stake in the market by diminishing the item value, it needs
to consider the probability of its contentions, similar to British Petroleum, decreasing
their costs as a result.

Monopolistic Competition: On the other hand, in a monopolistic rivalry, the structure

contains countless firms that can practice a flexibility of section and exit. In this model,
each firm has various contenders, yet, every last one of them offers marginally unique
products. In this bunch of endeavors, every one takes autonomous choices about the
cost and result by remembering the market it works in, an item it offers, and the related
cost of creation. Despite the fact that, there is a more noteworthy stream of information
in the market, yet, it doesn't delineate a flawless market. The principle highlight of this
market structure is the capacity of its items to be separated in four classes, including
advertising separation, human capital separation, separation through circulation, and
physical item separation.

Differences
Both monopolistic rivalry and oligopoly portray a defective rivalry. Following are a
portion of the real contrasts between these two market structures:
a) Market Size and Control: The fundamental distinction between both the market
structures is a relative size and market control of these organizations based on
various rivals in a specific market. Be that as it may, there is no partitioning line
 between these structures, for instance, there is no unmistakable meaning of what
number of firms ought to there be in a market with the goal for it to be a
monopolistic rivalry or oligopoly showcase.

b) Dominance – An Indicator of the Structure: An Indicator of the Structure:

There are a couple of situations where it is the predominance of a few firms that
decides the kind of structure a market has. For instance, an industry that
comprises of 4000 moderately same firms is for the most part considered as a
monopolistic rivalry, while, an industry with a similar number of firms, out of
which, just 4 are generally extensive and ruling, is known as the oligopoly
advertise. The most unmistakable case of oligopoly showcase is oil industry,
wherein, regardless of having an expansive number of organizations, the market
is overwhelmed by a couple of real organizations.

c) Geographical Area: Another component that recognizes the monopolistic rivalry

from oligopoly is a geological zone. It is a key factor in distinguishing a market
structure. It is conceivable that a specific industry falls into a classification of
oligopoly advertise on the off chance that it lies in a little city, and a monopolistic
rivalry on the off chance that it has a nearness in a huge city. A case of this can
be a retail advertise. In the event that you shop in an expansive city, you will
have a huge number of shopping choices, including shopping centers, stores,
smaller than normal bazaars, and across the nation retail chains. Such a market
speaks to a monopolistic rivalry.

d) Barriers to Entry: As it has just been examined, oligopoly speaks to high

boundaries to section when contrasted with the monopolistic rivalry, however it
involves degree. The key component that can offer ascent to oligopoly showcase is
a necessity for government approval, particularly in conditions where section is
limited to just a couple of firms. Then again, it can likewise be illustrative of
monopolistic rivalry if a substantial number of firms are permitted to go into a market.
Aside from government approval, asset possession and startup cost additionally
confine the passage of firms at various levels, prompting both of the two structures.
These hindrances continue changing occasionally, moving monopolistic rivalry into
an oligopoly and the other way around.

Real world examples like OPEC, Cement Cartels, etc

'Cartel' is a relationship of makers who by understanding among themselves
endeavor to control generation, deal and costs of the item to acquire an imposing
business model in a specific industry or ware. It adds up to an uncalled for exchange
rehearse which isn't in the general population intrigue.

Cartels are workable in an oligopoly showcase they bomb in imposing business

model market in light of the fact that in a monopolistic market there is just a single
maker and he can't frame cartel in light of the fact that to set up a cartel we should
have in excess of one producer. Fundamentally the point of this examination paper
is to demonstrate these sorts of cartels which are working in India and working viably
in this oligopolistic economy.

The Competition Act,2002, as changed by the Competition Act,2007, denies any

understanding which causes, or is probably going to cause calculable antagonistic
impact on rivalry in business sectors India. Any such assention is void. The
understandings between organizations not to contend on value, item or clients those
assentions are called Cartels. The principle target of a cartel is to raise cost above
rivalry levels, which at last outcomes in damage to the purchasers and to the
economy.For buyer's cartelization comes about are higher costs, low quality and
less or no decision for products and ventures.

A cartel is said to persevere when at least two organizations go into any assention,
i.e. unequivocal or certain, to settle costs, to restrain creation and supply, to allocate
piece of the pie or deals amounts, or to include in deceitful offering or offer
apparatus in at least one markets.
 Three major factors are necessary to establish a cartel includes:
1) The cartel must have the capacity to raise cost over the non-cartel level without
prompting significant expanded rivalry from non-part firms.

2) The expected discipline for shaping a cartel must be low with respect to the
normal increases.

3) The cost of setting up and implementing a cartel assention must be low with
respect to its normal additions.

Just if a cartel is relied upon to raise the cost over the non-cartel level and keep it high
do the organizations join. An expansion in cost will realize an increment in income just if
the request bend confronting a cartel is inelastic. An inelastic request bend over the
long haul requires the co-frequency for the accompanying three elements:

1) Very couple of close substitutes in the cartelized item showcase.

2) Large piece of the overall industry of cartel individuals
3) Substantial obstructions to passage into the market for the cartelized item.

Cartels will probably be shaped in concentrated ventures. They are likewise frequently
found in littler land territories, since advertise, being little will probably have few firms,
who have an extensive offer of the business. Internationally, cartel individuals normally
controlled more than 90% of the market deals in the cartelized item. Cartelization
likewise requires item homogeneity, as organizations have more trouble concurring on
relative costs when each organization's item has distinctive characteristics or properties.

3. A) Explain how the consumer attains utility maximisation and producer

ensures cost minimization with the help of indifference curve and isoquant
technique. (5 Marks)
Solution: A company's bank objective is benefit expansion. On the off chance that, in
the short run, its aggregate yield stays settled (because of limit requirement) and on the
off chance that it is a value taker (i.e., can't settle the cost or change cost alone as in a
simply aggressive market) its aggregate income will likewise stay settled. Subsequently,
the best way to amplify benefit is to limit cost. In this way, benefit augmentation and cost
minimisation are the two sides of a similar coin. In addition, supply relies upon cost of
generation. The choice to supply an additional unit relies upon the peripheral cost of
delivering that unit. Maybe the most critical determinant of the association's value yield
choice in any market is its cost of creation.

The firm’s cost, in its turn, depends on two key factors, viz.:
1) The specialized connection amongst data sources and yield (i.e., how yields
differ as information sources change), and

2) Factor costs (i.e., the cost of work or the wages, the cost of capital or the loan fee
et cetera).

The long-run generation capacity of a firm including the utilization of two variables, say,
capital and work is spoken to by break even with item bend or isoquant. This bend is
otherwise called a maker's lack of concern bend. An isoquant follows out the blends of
any two sources of info which yield a similar level of yield. This blends must be the most
effective ones — i.e., any point on an isoquant demonstrates the base amounts of the
sources of info required to create a given yield. Isoquants are normally attracted as
being arched to the starting point in light of the accepted substitutability of data sources.

Isoquants: An isoquant is a locus of focuses demonstrating all the in fact proficient

methods for joining components of generation to create a settled level of yield. It is
otherwise called the equivalent item bend. In the event of two variable components,
work and capital, an isoquant shows up as a bend on a chart the tomahawks of which
measure amounts of the two elements. The bend demonstrates the effective
alter¬native methods of creation or elective mixes of two factors that can deliver a
settled level of yield.
For example

Table 1 illustrates, by utilizing theoretical numbers, seven elective strategies for creating
six units of yield. These options are demonstrated additionally in Fig. 5, as spoke to by
the bend Q = 6. In this way, the firm could pick blend a (18K + 2L), mix g (2K + 18L) or
some other mix appeared in Table 1.

Fig. 5 demonstrates two different isoquants, each comparing to specific (settled) level of
yield, viz., Q = 8 and Q = 10. Each bend demonstrates the elective mixes of work and
capital that would create 8 and 10 units of yield, separately. We could draw the same
number of isoquants as we like.

3. B) “There is a high cross elasticity of demand between new and old cars”.
Discuss the statement by explaining the features of cross elasticity of demand.
Also compare and contrast cross elasticity with other types of elasticity’s of
demand. (5 Marks)
Solution: The cross-value versatility of interest measures the adjustment popular for
one great in light of an adjustment in cost of another great. The cross-value flexibility of
interest demonstrates the connection between two products or administrations. All the
more particularly, it catches the responsiveness of the amount requested of one great to
an adjustment in cost of another great. Cross-Price Elasticity of Demand (EA,B) is
computed with the accompanying equation:

The cross-value flexibility might be a positive or negative esteem, contingent upon

whether the products are supplements or substitutes. On the off chance that two items
are supplements, an expansion sought after for one is joined by an increment in the
amount requested of the other. For instance, an expansion popular for autos will prompt
an expansion sought after for fuel. In the event that the cost of the supplement falls, the
amount requested of the other great will increment. The estimation of the cross-value
versatility for correlative merchandise will in this manner be negative.

Features of Cross elasticity of demand

A positive cross-value flexibility esteem shows that the two merchandise are substitutes.
For substitute products, as the cost of one great ascents, the interest for the substitute
great increments. For instance, if the cost of espresso expands, buyers may buy not so
much espresso but rather more tea. Then again, the interest for a substitute decent falls
when the cost of another great is diminished. On account of impeccable substitutes, the
 cross flexibility of interest will be equivalent to positive limitlessness.

Substitutes: Two merchandise that are substitutes have a positive cross flexibility of
interest: as the cost of good Y rises, the interest for good X rises.

Two products may likewise be autonomous of each other. In this occasion, if the cost of
one great changes, interest for the other great will remain steady. For autonomous
merchandise, the cross-value versatility of interest is zero: the adjustment in the cost of
one great with not be reflected in the amount requested of the other.

Independent: Two merchandise that are autonomous have a zero cross versatility of
interest: as the cost of good Y rises, the interest for good X remains consistent.

Compare and contrast between cross elasticity with other types of elasticity’s of
demand.
Cross elasticity of demand Income elasticity of demand Price elasticity of
demand
Sometimes two goods are Salary flexibility of interest Value flexibility of
related in such a way that the might be characterized as the interest is a
change in the price of one good proportion of the proportionate measure of the
causes a change in the quantity change in the amount adjustment in the
of the other good. The degree of requested of a product to a amount requested
responsiveness in the demand proportionate change in the or acquired of an
for one good to the change in the wage of the buyer. In this item in connection
price of the other good manner, wage versatility of to its value
(substitute or complement) is interest, ey of any product is change.
called the cross elasticity of Communicated
demand. numerically, it is:

It is measured as the ratio of Price Elasticity of

percentage change in amount Demand = %
demanded of one commodity to Change in
the percentage change in price Quantity
of other commodity. Let the Demanded / %
quantity demanded of Change in Price
commodity ‘X’ depends upon the
price of commodity ‘Y’ Cross
In the event that
elasticity of demand (ec) between
the amount
‘X’ and ‘Y’ is:
Where, requested of an
item displays an
q remains for the amount
extensive change
requested.
in light of its value
y remains for the wage of the change, it is
shopper. named "versatile,"
that is, amount
∆q remains for the adjustment extended a long
 in the amount requested way from its earlier
point. In the event
∆y remains for the adjustment
that the amount
in wage of the shopper.
obtained has a
little change
For instance, wage of the
because of its
shopper increases from Rs.
cost,
500 to Rs. 600, resulting in an
increase in the quantity
it is named
demanded from 10 units to 15
"inelastic"; amount
The primary determinant of cross
units. Then,
didn't extend much
flexibility of interest is the idea of
from its earlier
the wares in respect to their
point.
employments. The cross
flexibility is high, when the two
products fulfilling a similar need
similarly well and the other way For the majority of the The all the more
around. products, pay versatility of effortlessly a

interest will be sure, as with customer can

substitute one item
increment in the level of pay,
with a rising cost at
individuals have a tendency to
another, the more
spend more on the
the cost will fall – be
merchandise. Such
"versatile."
merchandise are called
ordinary products. In any case,
individuals isolate their
expanded wage among
different merchandise in an
unexpected way.
Wage versatility of interest relies
upon the day and age, since
utilization designs alter with a
period tag to changes in salary.
For non solid products, short run
pay versatility is lesser than long
run wage flexibility. Inverse is the
situation for solid merchandise. It
likewise relies upon the idea of
the commodity.