Nowadays, more and more engineers are heading organizations as owner or
Managing Directors, an engineer needs to be very efficient in engineering
activity but in management too. The biggest failure of any firm has been the
inability of its leader to read the business proposal correctly. This chapter
focuses on formulating the correct approach in project planning and
execution. A project consists of interrelated activities, which need to be
executed to complete the entire task. The activities are interrelated and they
need to be performed in a logical sequence to maximize the return.
Step 1: Market Survey, Business Risk and Forecasting
Step 2: Planning and Budget Preparation
Step 3: Managing Finance
Step 4: Arranging Inputs
Step 5: Profit Maximization
Step 6: Evaluation and Feedback7.58 ba x
Fee i
Price Elasticity
of Demand
Ep
Price Elasticity of Demand—Simple Arithmetic Calculations
Example 2 The demand lawis given by q=10-p near the point g =4 and p =
Rs. 6. he pence hy Semis the per cent decrease in demand
and hence an appro: lasticity of demand.
Solution: At p = Rs. 6; price increases by 5%, hence increased price
Rise in price = 6.30 — 6.0 = Rs. 0.30.
Corresponding to this increased price, the new demand is
q = 10 - 6.30 = 3.30
Decrease in demand = 3.30 - 4 = 0.7
Thus, we have,
Rise in a =
Fall in demand = 0.70,
\|e,l = Percentage change in demand/percentage change in price
%
=35
Price elasticity is more than unit.Example 3 The price elasticity of demand for milk is equal to unity (= 1) and at
the price of Rs. 35 per litre, a milk confectionery shop demands 70 litres milk If
the price become Rs. 40 per litre, how much milk the shopkeeper will purchase
if it does not intend to increase its expenditure on milk.
Solution: Ifnew demand is q,
_ New demand-old demand Old price
New price-old price Old demand
or, l= =
, ~~ \40=B5 ° 70,
or -q+70=
10
or, q=70-j0=
So, the shop will purchas Lo tres of milk.
Example 4 If the e, = 1, five kg of grapes are demanded at Rs. 80 per kg. At
what price six kg of grapes will be demanded?
Solution Let new price = p
New demand-old demand | Old price
New price-old price Old demand
(i
a=
= * = 7)
or, p-80=-16
or, p=-16 + 80 =64
So, at price of Rs. 64/kg, six kg of grapes will be demanded.Example 6 The price of g, increases from Rs. 60 per kg to Rs. 75 per
kg. As a result, the demand for qg, increases What
is the cross elasticity of demand of g, for q,*
Solution: dp, = 75-60 =Rs 15
dg, = 10-7 =3
where dp, is change in price of q, and dq, is change in demand of 43
BE: jaa
p,m is 7 7
= which is a positive quantity
<. Commodities g, and qs are competitive.
aateons le 8 When income of a household was Rs. 60,000 per month. It bought
20 litres of milk per month. When income increased to Rs. 75,000 per month, it
purchased 24 litres of milk per month. Assuming no change in the price of
milk, what is the income elasticity of demand for milk+
Solution: Income elasticity of demand as e, is measured with the help of
following formula:
dq_y
&=— ke
Td ¢
where dq = change in demand
dy = change in income
y= original income
q = original demand
ee 0, 60000
'5000 — 60000 * 20
Income elasticity oF demand is positive, $0 it is a normal good and it is less
than unity, so, a necessity good.Example 10 A mall owner is takin;
x1 3 lakh 3.12 lakh
X2][ 5 takh |20 lakh
Find out their advertisement elasticity and nature of commodities XY; and X.
. Change in demand
Solution: — e, for X, = —
Change in amount of money spent on advertisement
Original amount of money spent on advertisement
3)
312-31
% x 50
75-50 *3
(770 — 500) 50
éa for X= 530) * 300
= 10.8 x 0.1 = 1.08
Advertisement elasticity for commodity X, is less than one and for
commodity X3, it is more than one. Commodity X is luxury, may be used by
young people, who are more influenced by advertisement whereas X; is a
necessary commodity.