ASSIGNMENT ON

THE CASE STUDY

OF HIND OIL
INDUSTRIES
Submitted to: Dr. Kunwar Milind Singh
Associate Professor (Economics & International Business)

Submitted by: Group 5

Srinjoy kar 116/2022
Jaymeet Patil 118/2022
Aman Patni 135/2022
Sagar kalia136/2022
Aditya Sinha 134/2022
 ASSIGNMENT ON THE CASE STUDY OF HIND OIL INDUSTRIES

Q1. What are the relevant factors to be considered for modeling the demand function for Maa
mustard oil?
Increase in per capita income.
Price of the own product
Price of the competitor’s product
Promotional expenditure
Q2. How is each factor related to elasticities of demand?

An increase in per capita income will give income elasticity of demand and it measures the
quantity demanded varies with the change in income. If the income elasticity of demand is
positive, then a good is a normal good and if it is negative good is an inferior good.

Price elasticity of demand is the measure of how the changes in the price of the product affect
the quantity demanded of the product. If the price elasticity of demand is greater than 1 then
demand is elastic and a small change in price leads to a large change in the quantity demanded
if the price elasticity of demand is less than 1 that means demand is inelastic and a small price
change will change the equal proportion of quantity demanded.

The price of a competitor’s products indicates the cross-price elasticity of demand that
measures how the quantity demanded gets affected by a change in the price of other products.
The cross-price elasticity of demand is negative for inferior goods and positive for substitute
goods.

An increase in expenditure on advertisement and promotion will give a product edge in the
market which will have an impact on the quantity demanded.

Q3. How does the estimation of demand function incorporate the impact of each factor using
the Multiple regression model?

F (Quantity demanded) = a+ b*(own price) +c*(per capita income) +d*(competitor’s price)

+e*(adv expenditure)
By regression analysis on the dependent and other four independent variables, we can
determine the coefficients and weightage of these factors in the estimation of the demand
function.

Regression Statistics
Multiple R 0.9110
R Square 0.8298
Adjusted R
Square 0.7627
Standard Error 614.0284
Observations 54

ANOVA
Significance
df SS MS F F
Regression 15 7.0E+07 4.7E+06 1.2E+01 2.7E-10
 ASSIGNMENT ON THE CASE STUDY OF HIND OIL INDUSTRIES

Residual 38 1.4E+07 3.8E+05

Total 53 8.4E+07

Standard Upper Lower Upper

Coefficients Error t Stat P-value Lower 95% 95% 95.0% 95.0%
Intercept 3934.255 1893.361 2.078 0.045 101.345 7767.165 101.345 7767.165
X Variable 1 -121.154 41.649 -2.909 0.006 -205.468 -36.840 -205.468 -36.840
X Variable 2 113.488 36.812 3.083 0.004 38.965 188.010 38.965 188.010
X Variable 3 -0.313 0.138 -2.261 0.030 -0.593 -0.033 -0.593 -0.033
X Variable 4 7.986 1.158 6.897 0.000 5.642 10.331 5.642 10.331

Q4. Analyze the estimated demand function and calculate the elasticities of demand for Hind
oil industry products.

a= 3934.254
a is the intercept of quantity demanded which means when all factors are zero then the quantity
demanded will be 5024.753 units.
b = 121.154
b is the co-efficient of own price and the value suggests that with the increase of one unit in
own price factor will decrease the quantity demanded by 121.154units.
c = 113.487
c is the co-efficient of compe price (competitive product) and value suggests that with an
increase in one unit of compe price will have a positive impact on quantity demanded i.e.,
demad_maa (Q) will increase by 113.487units.
d= -0.3130
d is the co-efficient of inc_per_capita(income) and the value suggests that it has a negative
impact i.e. with the increase in one unit of inc_per_capita, the quantity demanded will decrease
by 0.3130 units.
e = 7.986
e is the co-efficient of prop_exp (promotional expenditure), the value suggests that the increase
in one unit of prop_exp will have a positive impact and the quantity demanded will increase
by 7.986 units

Cross price elasticity of demand is 0.9343(+ve)

= c*(the price of competitive product/quantity demanded)
= 113.487*(109.14/13256)
= 0.9343

The price elasticity of demand is -0.83517 (-ve)

= b*(own price/quantity demanded)
=-121.154*(91.38/13256)
=-0.83517

The income elasticity of demand of inc_per_capita is -0.17816 (-ve)

=d*(increase in income/quantity demanded)
=0.3130*(7545.15/13256)
=-0.17816

Advertisement elasticity of demand of prop_exp is 0.75 (+ve)

 ASSIGNMENT ON THE CASE STUDY OF HIND OIL INDUSTRIES

=7.986*(1247.31/13256)
=0.75

Q5. What do these calculations suggest about the effect of changes in each of these variables?

Cross price elasticity of demand is 0.9343(+ve) which means that if the price of competitive
products increases then the consumer will switch to other products.

The price elasticity of demand is -0.83517 (-ve) which means that if the price of Maa mustard
oil increases its price it will lead to a decrease in the quantity demand for its product.

The income elasticity of demand of inc_per_capita is -0.17816 (-ve) suggests that the hind
oil product is inferior good which means with the increase in income the quantity demanded
will decrease as people will move to better substitutes available in the market.

Advertisement elasticity of demand of prop_exp is 0.75 (+ve) which means with an increase
in expenditure on an advertisement, the quantity demanded of said product will go up

Q6. What would be the impact of a price change by HOI on the total revenue of Maa Mustard
oil keeping other variables constant?

The price elasticity of demand for HOI product Maa mustard oil is -0.93132, indicating that it
is inelastic because the price elasticity of demand is less than one. It states that when prices
change dramatically, the quantity demanded changes by a small margin.
Total revenue is calculated by multiplying the price by the quantity demanded. When demand
is elastic, as prices fall, total revenue rises; when demand is unit elastic, price decreases have
no effect on total revenue; and when demand is inelastic, as prices fall, total revenue falls.
Because the price elasticity of Maa mustard oil is inelastic, a decrease in price will result in a
decrease in total revenue and vice versa. In the case of inelastic products, total revenue has a
direct relationship with price.

Q7. What is the optimum price at which total revenue can be maximized for Maa Mustard oil
if the competitor’s price does not increase in October 2015? (Scenario 1)?

Prediction of October 2015 optimum price where total revenue can be maximized :
compe_price = 109.14
inc_per_capita= 7545.15 *1.01 = 7620.601
pro_exp =1247.31
own_price =P
Quantity demand =Q
Q = 5024.753-136.6168P+117.4078*(109.14)-0.2823*(7620.601 )+ 7.8651*(1247.31)
Q = 25497.5624-136.6168P ---------(2)
Now, Total Revenue = TR TR= P * Q--------(3)
By putting eq 2 in (3)
we get,
TR= P(25497.5624-136.6168P)
TR=25497.5624P-136.6168P^2 ------------(4)
Now differentiating both sides w.r.t to P
d(TR)/d(P) = 25497.5624 *d(P)/ d(P)-2*136.6168*P* d(P)/ d(P)
d(TR)/d(P) = 25497.5624- 273.2336P
 ASSIGNMENT ON THE CASE STUDY OF HIND OIL INDUSTRIES

As the slope at TR max is zero, therefore,

d(TR)/d(P)=0 0= 25497.5624- 273.2336P P = 25497.5624/273.2336 P= 93.3178 ---------(5)
Now putting value of P in eq(4)
TR=25497.5624*93.3178-136.6168*93.3178*93.3178
TR=1189688.40
The optimum price at which total revenue can be maximized is 93.32

Q.8 If competitors increase their price by around 6% as suggested in the case (scenario 2),
what would be the optimum price? Does the company benefit if competitors increase their
prices? ( perform all calculations by assuming no increase in promotional expenditure in the
next month and 1% increase in per capita income of consumers)

Prediction of October 2015 optimum price where total revenue can be maximized
compe_price = 109.14*1.06 = 115.6884
inc_per_capita=7545.15 *1.01 = 7620.601
pro_exp =1247.31
own_price =P
Quantity demand =Q
Q = 5024.753-136.6168P+117.4078*(115.6884)-0.2823*(7620.601 )+ 7.8651*(1247.31)
Q=26266.3957-136.6168P--------(6)
Now,
Using eq 3 (from question 7)
TR = P * Q
By putting eq 6 in (3) we get
TR= P(26266.3957-136.6168P)
TR=26266.3957P-136.6168P2------------(7)
Now differentiating both sides w.r.t to Q
d(TR)/d(P) = 26266.3957*d(P)/ d(P)-2*136.6168*P* d(P)/ d(P)
d(TR)/d(P) = 26266.3957- 273.2336P
As slope at TR max is zero therefore
d(TR)/d(P)=0
0= 26266.3957- 273.2336P
P = 26266.3957/273.2336
P=96.13
Now putting value of P in eq(7)
TR=26266.3957*96.1316-136.6168*96.1316*96.1316
TR=1262515.926

The optimum price at which total revenue can be maximized is 96.13.

Q9. Plot a demand curve and a total revenue curve using estimated value of quantity demanded
in Scenarios 1 and 2. Analyze the findings by using concept of total revenue test and plotted
graph.

When the price of a competitive product remains unchanged and income increases by 1% in
scenario 1, the price at which total revenue is maximized is 93.32, and the maximum total
revenue is 1189688.40. Demand will become elastic as Price elasticity of demand >1 with
 ASSIGNMENT ON THE CASE STUDY OF HIND OIL INDUSTRIES

additional price increases, and the inelastic Price elasticity of demand with further price
declines.
Similar to scenario 1, scenario 2's price at which total revenue is maximised is 96.13, and the
maximised total revenue is 1189688.40 when the price of the competing product increases by
6% while all other factors remain the same.

The demand curve for Maa mustard oil will move right, increasing demand due to other
variables, such as the price increase of competing items. We can assume that the hind oil
industries have the ability to raise their prices from 315.88 to 318.98. The quantity needed rises
to 12327539.36 from 12089440.71 despite the price increase. This occurs as a result of
additional circumstances, such as an increase in the price of a competing product by 6%, which
boosts demand. This counteracts the drop in quantity demand that should have occurred as a
result of the oil's price hike.