NAME: - NACHIKET PAWAR

COLLAGE: - NMIMS GLOBAL ACCESS SCHOOL FOR

COUNTING EDUCATION
SUBJECT: - BUSINESS ECONOMICS

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Q1. “Demand forecasting is an important tool for predicting the demand for an organization’s
products or services in a specified time period in the future” Enumerate any three needs for
demand forecasting and discuss the steps involved in demand forecasting.

ANS:

Needs for Demand Forecasting:

 Producing the desired output:

Demand forecasting allows an organisation to create the pre-determined output. It helps the
organisation to organise different aspects of production (capital, land, labour,) which allows us to
produce the desired quantity without any hindrance.

 Forecasting sales figures:

The estimation of sales figures of an organisation for a given period is known as Sales forecasting. It
uses historical sales data and current trends in the market. Demand forecasting helps in predicting the
sales figures.

 Better control:
Demand forecasting allows us to have better control on business activities, which requires to have a
proper understanding of cost budgets, profit analysis.

Steps Involved in Demand Forecasting:

 Specifying the objective:

Before tackling any objective in an organisation the purpose of demand forecasting needs to be
specified. The objective can be specified on the following basis:
o Short-term / long-term demand for a product
o Industry demand / demand specific to an organisation
o Whole market demand / demand specific to a market segment

 Determining the time perspective:

As objectives vary, the demand can be forecasted for a short period or long period. When dealing
with long-term demand forecasting, an organisation needs to take care of constant changes in the
market and economy.

 Selecting the method for forecasting:

The objective, time period, and availability of data, experience and expertise of the demand
forecaster affects the organisation’s needs to select the most suitable forecasting method.

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 Collecting and analysing data:
Collecting and analysing data is the step in demand forecasting after selecting the demand
forecasting method. Data can be retrieved either from primary sources or secondary sources or both.
As data is collected in the raw form, it needs to be analysed in order to get any useful information out
of it.

 Interpreting outcomes:
Analysed data can be used to estimate demand for the required timeline. The results are in the form of
equations, which are then presented in a comprehensible format.

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2. From the given table calculate TR, MR and AR and highlight the relationship between
Total revenue (TR) and Marginal revenue (MR).

Quantity Price

50 200

60 150

70 100

80 50

90 10

ANS:

Total revenue (TR) = Quantity * price

 TR1 = 50x200 = 10000

 TR2 = 60 x150 = 9000

 TR3 = 70 x100 = 7000

 TR4 = 80 x50 = 4000

 TR5 = 90 x10 = 900

Marginal Revenue = Change in Total Revenue / Change in Quantity Sold

 MR1 = (10000)/ (50)

= 200

 MR2 = (10000-9000)/ (60-50)

= 1000/10
= 100

 MR3 = (9000-7000)/ (70-60)

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 = 2000/10
= 200

 MR4 = (7000-4000)/ (80-70)

= 3000/10
= 300

 MR5 = (4000-900)/ (90-80)

= 3100/10
= 310

Average revenue = Total revenue / quantity of units

 AR1 = 10000/50
= 200

 AR2 = 9000/ 60
= 150

 AR3 = 7000/ 70
= 100

 AR4 = 4000/ 80
= 50

 AR5 = 900/ 90
= 10

QUANTITY PRICE TOTAL MARGINAL AVERAGE

REVENUE REVENUE REVENUE

50 200 10000 200 200

60 150 9000 100 150

70 100 7000 200 100

80 50 4000 300 50

90 10 900 310 10

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 Relationship between Total Revenue (TR) and Marginal Revenue (MR):
Relationship between Marginal Revenue and Total revenue can be expressed by an equation as
follows:
MR = ∆TR / ∆Q
Where,
MR: - Marginal Revenue
∆TR: - Change in Total Revenue
∆Q: - Change in Quantity
Hence,
o If MR is greater than 0, the sale of unit increases TR.
o If MR is less than 0, the sale of unit decreases TR.
o If MR is 0, then the sale of unit causes no change in the actual TR.

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3. A. The disposable income of Mehta family increases from Rs 5000 to Rs 15,000. As a result, the
family‘s demand for milk and milk goods has increased from 30 liters to 60 liters per month. Calculate
the income elasticity of demand.
3. B. A drop in the price of lemons from Rs 100 per kg to Rs 60 per Kg increases the quantity demanded
from 1.75 to 7 kg per week. Calculate the price elasticity of demand.

ANS:-

3. A.
The responsiveness of quantity demanded with respect to the income of consumers is called the
Income Elasticity of the Demand.
Income Elasticity of Demand = (percentage change in quantity demand) / (percentage change in income)
Percentage change of quantity demanded = {(new quantity) – (original quantity)} / (original quantity)
Percentage change of quantity demanded = {(60 – 30) / 30}
=1
Percentage change in income = [{(new income) – (original income)} / (original income)]
Percentage change in income = (15000 – 5000)/ 5000
=2
Therefore price elasticity of demand =1/2
= 0.5

3. B.
The change in quantity demanded due to change in the price of a product is called Price
Elasticity of Demand.
Price elasticity of demand = (percentage change in quantity demand)/ (Percentage change in price)
Percentage change in quantity demanded = (7−1.75)/ 1.75
=3
Percentage change in price = (60−100)/ 100
= 0.4
Thus, price elasticity of demand = 3 / 0.4
= 7.5

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