Unit 2

Unit 2 MOP
2021
Unit 2
• Demand analysis, Basic Concepts, and tools of analysis for
demand forecasting.
• Use of business indicators;
• demand forecasting for consumer, consumer durable and
capital goods.
• Concepts in resource allocation,

• Cost analysis;
• break even analysis,
• short run and long run cost functions;
• production functions; cost-price output relations - capital
investment analysis.
• Economies of size and capacity utilization; Input-Output

Analysis
2/1/2022 By Dr. Gowri Ramachandran 2

Demand Analysis
Demand analysis seeks to

identify & measure the forces
that determine sales.
Meaning- 1, Desire to acquire it
2.
Willingness to pay for it & 3.
Ability to pay for it

Types of demand
Individual Demand Vs
Market Demand
Demand for Firm’s product

Vs Industry’s products
Autonomous & Derived

Demand
Types of demand
Demand for durable Vs

Non durable goods
Demand
Short term Demand

Vs Long-term
Demand
Demand forecasting- meaning
Sym117-m127
Predictions of
future demand
for products
Method of
predicting the
firm’s future
demnd

Why is it necessary ?
Fulfillment of the Stabilization of

Preparation of a
objective of the employment &
budget
firm Production
Other Issues viz,

inventory,
Expansion of Firms
Investment &
warehouse policy

Factors influencing Demand forecasts
Level of
Time period ( forecast ( General &
Short, Long Firm/ specific
period) Industry/ forecasts
Nation )
Product
Established Classification(
Capital goods/
products & Consumer
New Products goods/ Durable-
Non durable)

Forecasting Methods for established
products
1. Interview &
Survey approach (
short period )
Composite 2.opinion poll /

mgt collective opinion
opinion method
4. Panel of 3.Sample survey

Experts method

Forecasting Methods for established
products contd..
1.Projection
approach (Long
period )
Time
Correlatio
series
n analysis
analysis
Regression
analysis

Forecasting Methods for New
products
1.Evolutionary
method
5. Sample-survey method/ 2. Substitution

6. Indirect Opinion polling method.
method
3. Growth
4. Opinion Polling
pattern
Method
method

Criteria for a Good Demand Forecast
c) Flexibility
d)
Acceptability
e)
a) Accuracy
Availability f)
b) Durability
Economy
Good
Demand
forecast

Unit 2 Continued
MOP Oct 2018
Unit 2 Continued
• cost-price output relations –
•
Unit 2 Continued
MOP 2021
Unit 2 Continued
• Capital Investment Decision Analysis
Economies and
Diseconomies of
Scale
Economies of Scale
 As businesses grow – costs of production decrease
 Bigger businesses gain some advantages over smaller

businesses through Economies of Scale
 There are two types of Economies of Scale:

 Internal Economies
 External Economies
Internal and External
Economies
Internal Economies External Economies
 Those Specifically related to  Benefits the whole industry and

the business itself eg:- not specific firms
1. Production 1. Skilled labour in the area

2. Purchasing 2. Better road and rail networks
3. Marketing 3. Improves the reputation of the
4. Financial area
5. Managerial 4. Attracts other businesses
Example:
 Daimler Chrysler own the following brands:
Purchasing economies of scale can be achieved by bulk

buying parts that can be used across all brands such as
Wiper Blades
Diseconomies of Scale
 There are limits to the amount a

business can grow
 If businesses grow to large they start to
suffer from Diseconomies of Scale
 These diseconomies happen because
the larger the business the more difficult
it becomes to manage
Some common diseconomies
of scale:
1. Decision making
2. Managerial problems
3. Communication problems
4. Co-ordination/control problems
5. Staffing problems
Task:
1. Peter, a sole trader who owns a grocery shop, is in

trouble because of a supermarket which has just
opened. The supermarket benefits from economies of
scale. Select and explain (in detail) how four of these
economies will benefit the supermarket.
2. Explain how Diseconomies of Scale could effect the

Virgin Group?

Unit 2

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Unit 2 MOP

• Concepts in resource allocation,

• Economies of size and capacity utilization; Input-Output

2/1/2022 By Dr. Gowri Ramachandran 2

Demand analysis seeks to

Meaning- 1, Desire to acquire it

2/1/2022 By Dr. Gowri Ramachandran 3

Demand for Firm’s product

Autonomous & Derived

Demand for durable Vs

Short term Demand

2/1/2022 By Dr. Gowri Ramachandran 6

Fulfillment of the Stabilization of

Other Issues viz,

2/1/2022 By Dr. Gowri Ramachandran 7

2/1/2022 By Dr. Gowri Ramachandran 8

Composite 2.opinion poll /

4. Panel of 3.Sample survey

2/1/2022 By Dr. Gowri Ramachandran 9

2/1/2022 By Dr. Gowri Ramachandran 10

5. Sample-survey method/ 2. Substitution

2/1/2022 By Dr. Gowri Ramachandran 11

2/1/2022 By Dr. Gowri Ramachandran 12

 As businesses grow – costs of production decrease

 Bigger businesses gain some advantages over smaller

 There are two types of Economies of Scale:

 Those Specifically related to  Benefits the whole industry and

1. Production 1. Skilled labour in the area

 Daimler Chrysler own the following brands:

Purchasing economies of scale can be achieved by bulk

 There are limits to the amount a

1. Peter, a sole trader who owns a grocery shop, is in

2. Explain how Diseconomies of Scale could effect the

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