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Economic Analysis for Business Decisions

Subject Code –MFT4CCEF01
Term -1 Individual Assignment – 2

DEMAND FUNCTION OF A COMMODITY

Submitted to: Prof. M. Mallikarjun

Prepared by: Vaibhav Nahar
Roll No. 211233 Division C,
MBA– FT (2021-2023)
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COMMODITY: ULTRATECH CEMENT

 Taken annual sales from the annual report of the company in terms of quantity.
 Considered it proxy for the demand.
 Also noted the total revenue generated by the quantity sold.
 Then divided the quantity sold by the revenue to get a price per kg.
 Then taken quarterly sales in monetary terms from moneycontrol.com for various years.
 Interpolated the price per kg found earlier for 15 years with the help market experiences and data
from internet.

  Coefficients
Intercept -46.56695275
Per Capita Income (x1000) -0.125027543
Price Of UltraTech Cement (50 Kg) 0.328319633
Price Of JK Cement (Substitute Commodity) -0.002828984
Price Of TMT Bars (Per Kg) Complementary
Commodity) -0.127613472

Price Of JK
Price Of Cement Price Of TMT
Demand In Per Capita UltraTech (Substitute Bars (Per Kg)
Crore Bags (1 Income Cement Commodity Complementar
Quarters Bag= 50 Kg) (x1000) (50 Kg) ) y Commodity)
JUN '21 43.31 128.83 360.00 341.00 60.00

Demand Function:
 The demand of a commodity is function of certain factors which are Per Capita Income, Price of the
Commodity itself, Price of a Substitute Commodity and Price of a complementary Commodity.

 Consumption of Good = f (Per Capita Income, Price of Good, Price of Substitute, Price of
Complementary)
 C.G. = f (PCI, PG, PS, PC)
 Consumption of UltraTech Cement = FUNCTION (Per Capita Income, Price of Ultratech Cement, Price of
JK Cement {substitute}, Price of TMT bars {Complementary}

 C.G.= -46.56 -0.12 *PCI + 0.32*PG -0.002*PS - 0.13*PC

 C.G. = -46.56 -0.12 *128.83 + 0.32*PG -0.002*341.00 - 0.13*60.00
 C.G. = -62.01 +0.32*PG -8.48
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Equation for Demand Curve:

 C.G. = 0.32*PG -70.50 or PG = 3.125*C.G. + 220.31

 C.G. = Qd = 0.32*360 -70.50 = 44.7

 d Qd/d PG = 0.32

 Price Elasticity:
 EPG = d Qd/d PG x PG/Qd = 0.32 * 360/44.7
 Price Elasticity = 2.55
As the price elasticity for demand is high that means the demand of the product increases when its price
increases.

 Income Elasticity:
 ENI = Qd/d PCI * PCI/Qd = -0.12*(128.83/44.7)
 Income Elasticity = -0.34
As the income elasticity is negative, therefore the demand of the product is slightly reduced by the increase in
income.

 Cross-price Elasticity of Complementary Good:

 EPC = Qd/d PC * PC/Qd = -0.13*(60/44.7)
 Cross-price Elasticity = -0.17
As the cross-price elasticity is negative and negligible, therefore the demand of the product is hardly affected
by the change in price of complementary good.

 Cross-price Elasticity of Substitute Good:

 EPC = Qd/d PS * PS/Qd = -0.002*(341/44.7)
 Cross-price Elasticity = -0.014
As the cross-price elasticity is negative and negligible, therefore the demand of the product is hardly affected
by the change in price of substitute good.

 Total Revenue:
 Total Revenue = P*Qd = (3.125*Qd + 220.31) *Qd
 = (3.125*44.7 + 220.31) * 44.7
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 = ₹ 16,091.88

 Average Revenue:
Average Revenue = P*Qd/Qd = P = (3.125*Qd + 220.31) = (3.125*44.7 + 220.31) = ₹ 400

 Marginal Revenue:
Marginal Revenue = d TR/d Qd = 6.25*Qd + 220.31 = 6.25*44.7 + 220.31 = ₹ 499.37

REFERENCES
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 https://www.ultratechcment.com/content/dam/ultratechcementwebsite/pdf/financials/annual-
reports/AnnualReport2020-21.pdf
 https://www.moneycontrol.com/financials/ultratechcement/results/quarterly-results/
UTC01/11#UTC01