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Demand analysis
Demand:-demand is any goods or commodity
purchase quantity it is called as demand.
1)Law of demand: - according to law of
demand a negative relationship between the
prices of a product its demand. The law may
be stated as follows when the price falls
(decrease) demand extends (increase).price
rises demand falls (decrease).other things,
remaining constant.
2) Law of Demand- table
Price in Quantity
Rs. (demand)
10 1000 3) Diagram – law of
8 2000 demand.
6 3000
4 4000
2 5000 4) Assumptions law
of demand:-
No change in consumer income.
No change in consumer’s preference.
No change in consumer tastes and fashion
No change in the price of related product.
No change in the population.
No change in govt. policy.
No change in weather condition.
5) Factors influencing the demand for a
product (or) determinants of demand:-
Price of the product
Income of the consumer
Tastes, habits and preference of the
consumers
Relative price of substitute goods and
complement goods.
Consumer expectation
Population
Climate and weather
Advertisement effect.
7) Elasticity of demand
Elasticity of demand:-elasticity of demand is
the measure of the degree of change in the
amount demand of the commodity in response to
a given change in price of the commodity (goods)
or price of some related goods or changes in
consumer’s income.
Measurements of elasticity:-
Perfectly elastic demand
Perfectly inelastic demand
Relatively elastic demand
Relatively inelastic demand
Unity elastic demand
6)Types of demand
elasticity :-
Price elasticity of demand
EP=Proportionate change in quantity
demand/proportionate change in price
7)Significance of elasticity
demand:-
Useful to businessmen
Useful to the government and
finance minister
Useful to international trade
Useful for planning
Usefulness to consumer
Useful to trade unions
8) Demand fore casting:-
Demand fore casting:-demand fore casting
means expectation about the future course
of the market demand for a product.
Demand forecasting is essentially a
reasonable judgment of future
probabilities of the future demand
Unit-2
Theories of production and
cost analysis
1)Production:- production is a process by which
the inputs (factors) are converted into
outputs(goods).
It is the process of transforming factors such as
land, labour and capital into goods and services.
Production means creation of goods and
services for the human consumption.
Factors of production:-
Land
Labour
Capital
Entrepreneur.
2)Production function:-production
function is that function which defines the
maximum amount of output the can be produced
with a given set of inputs. Production function is
expressed mathematically.
Q= f(Ld,Lb,K,M,T)
Where Q=out put
F=functional relation
Ld=Land
Lb=Labour
K=capital
M=Management
T=Technology
3)Types of production
functions.
1. short –run production function
2. long-run production function.
Short-run production function
Production function with one variable input (or)
Law of variable proportion(or) law of returns.
3.stage
1 8 28 -2 3.5
Negative
1 9 25 -3 2.8
returns
Note:-
Total production(tp):-refers to the
total output product by all factors
inputs.
Average production(ap) :-avarage
production refer to the total
production by number of units of
variable input.
Marginal production(mp):-marginal
production refer to the rate of change
in total production due to change in
variable input.
Assumption the law of return:-
Constant technology
Operation in short –run only
Homogeneous factors
4)internal and external
economies of scale:-
1) Internal economies
2) External economies.
1) Internal economies:-internal
economies are those benefits or
advantages enjoyed by an individual
firm if it increases its size and the
output
Technical economies
Managerial economies
Labour economies
Marketing economies
Financial economies
Risk bearing economies
Economies of welfare.
2)External economies:-external
economies are those benefits which are
shared in by a number of firms or industries.
when the scale of production in an industry
or groups of industries increases. Hence
external economies benefit all firms within
the industry as the size of the industry
expands.
Economies of concentration
Economies of information
Economies of disintegration.
Contribution
p/v ratio =---------------------x100
sales
or
Sales- variable cost
p/v ratio =----------------------------x100
sales
or
Change in profit
p/v ratio =-------------------------x100
Change in sales
Fixed cost
Break-even point (units)= -----------------------
Contribution unit
or
Fixed cost
Break-even point (rupees)= ------------------------
p/v ratio
or
Fixed cost
Break-even point (Rupees ) = ----------------------- x selling price
Contribution unit
4)Margin of safety:-margin of safety is difference
between actual sales and break-even point sales. As
following formula use for calculation of margin of
safety.
Margin of safety = sales – break-even point sales.
Or
Profit
Margin of safety = -----------------------
P/v ratio
Fixedcost+.Expectedprofit.
Required sales = ----------------------------------------
P/v ratio
6) Fixed cost:-formula for calculation of fixed cost.
Fixed cost= sales x p/v ratio - profit
7) Profit:-formula for calculation of profit
(December 2016)