Question No 1:

Answer:
INTRODUCTION:
The technique of estimating future consumer demand over a specific time period is
known as demand forecasting, sometimes known as sales forecasting, in order to
prevent both underproduction and overproduction. In addition to other information, it
makes use of historical data.
Demand forecasting gives companies useful knowledge about their potential in both the
current and other markets. Managers may decide with confidence on pricing, market
potential, and corporate growth strategies. Through forecasting and proactive planning,
businesses may gauge and reduce future risk and uncertainty. Forward planning will
lack direction and significance without forecasting.
Demand forecasting, according to Cundiff and Still, is an estimation of sales during a
certain future time based on a suggested marketing plan and a specific set of
unpredictable and competitive forces.
Demand forecasting is the act of determining figures for demand during future time
periods, according to Evan J. Douglas.
Demand forecasting has two main uses:
Macroeconomic Applications:
Predicting aggregate measurements of economic activity at the international, national,
regional, or state level is necessary to make predictions about economic activity at the
national or international level, such as inflation or employment.
Applying Microeconomic Principles
Forecasting the demand and sales of the company's product, as well as predictions of
company and industry performance, such as corporate profits, typically start with a
macroeconomic forecast of the overall level of economic activity for the economy as a
whole.
PHILOSOPHY AND APPLICATION
Capital Investment: Purchasing tangible assets on behalf of a business in order to
further its long-term aims and objectives is known as capital investment. Among the
assets that are bought as capital investments are real estate, factories, and equipment.
A capital investment is a financial outlay made to support the long-term expansion of a
business. The phrase is frequently used in reference to a business's purchase of long-
term fixed assets like property and machinery. Cash on hand is one possible source of
capital investment funding, but major projects are typically financed by taking out loans
or issuing stock.
Decision regarding expansion: When a firm or business wishes to outperform its prior
performance by a significant margin, it employs the expansion strategy. A corporation
uses techniques like expanding its commercial operations to focus on a larger client
market and technical tools when it wants to reach a given growth level. Different
businesses may have different objectives and justifications for their business expansion
strategy. Increasing the societal benefits, growing the market share, creating scale
economies, gaining reputation, and making more money are only a few examples.
The procedures for demand forecasting
1.Setting the Objective: The demand forecasting process's initial and most important
step. Demand forecasting should only be started when a clear purpose has been
established by the company. Demand projections ought to have a purpose.
Fundamentally, it foretells what, how much, and when people will buy. Select your time
frame, the exact product or broad category you're considering, and whether you're
predicting demand for the entire population or just a certain group of people. ensuring
that it impartially meets the needs of your financial planners, product marketing,
logistics, and operations teams. For the proper demand capacity planning, which will
enable you to employ decision-making forecasting procedures to comprehend online
consumer behavior, you must be aware of your objectives.
A. Selecting the forecasting period, such as whether an organization should use short-
term or long-term forecasting.
B. Selecting whether to predict the market's entire demand for a product or just the
demand for an organization's own goods.
C. Choosing whether to predict the demand for the entire market or a specific market
sector. Choosing whether to predict the organization's market share.

2.Choosing the Time Period: This step involves selecting the time frame for demand
forecasting. Demand can be predicted for either a long- or short-time frame. In the short
run, demand determinants might not vary much or might even stay the same, but in the
long run, demand determinants undergo a major change. As a result, an organization
chooses the time frame based on the goals it has established.
3.Choosing a Demand Forecasting Method: This is one of the most crucial elements in
the demand forecasting procedure. Numerous techniques can be used to forecast
demand. Depending on the forecasting objective, time frame, data requirements, and
data availability, the method of demand forecasting varies from company to
organization. Making the appropriate choice is essential for time savings.
4.Data Collection: This step involves acquiring either primary or secondary data.
Primary data is a term used to describe information that is gathered for a specific study
project by researchers through observation, interviews, and questionnaires. In contrast,
secondary data refers to information that was gathered in the past but can still be useful
in the current situation or study project.
5. Predicting Results: This step involves estimating the anticipated demand for a given
period of time. The findings ought to be understandable and presented in a useful
manner. The management of the organization or the readers of the results should have
no trouble understanding them.
Conclusion:
Demand forecasting assists companies in making well-informed decisions that impact
everything from supply chain management to inventory planning. Businesses want a
strategy to accurately estimate demand because client expectations are changing more
quickly than ever. Businesses can't decide how much money to spend on marketing,
how much product to produce, how many people to hire, and other issues unless they
have a thorough grasp of demand. Although it can never be completely accurate,
demand forecasting can help you shorten lead times for production, boost operational
effectiveness, save money, introduce new products, and enhance customer satisfaction.
Demand forecasting using historical data from at least one year ago, including sales
data, average flow, and volatility. Additionally, we must consider the political stability of
the country or region where the products are purchased. To better manage inventories
and ensure the sustainability of the supply chain while using less working capital, we
must however create long-term agreements with our suppliers.

Question No 2:
Answer:
INTRODUCTION:
Total Cost: The phrase "total cost" refers to the total cost of manufacturing, which
considers both fixed and variable costs. The cost necessary to manufacture a good is
referred to as the whole cost in economics. Total cost refers to the total sum of money
required to manufacture, maintain, or own anything. Consider the construction of an
automobile. The total cost of manufacturing is the sum of all the costs involved in
producing a car, which are numerous and varied. From the standpoint of production
managers, it is crucial to comprehend the idea of the total cost of production because it
aids in determining the overall profit margin at various production levels. Since the total
fixed cost is often not anticipated to fluctuate over a shorter time frame, the average
variable cost per unit is what essentially determines the total cost of production.
However, the total fixed cost is also crucial because when the total variable cost and
total fixed cost are added together and subtracted from the revenue, the result is the
company's profit. The total cost formula is therefore quite helpful for all businesses.
The following steps can be used to derive the total cost formula:
 1. Determine the production costs that are fixed in nature, that is, the costs that do
not fluctuate as the level of production changes. Selling costs, rent costs,
depreciation costs, etc. are a few instances of fixed production costs.
2. Determine the average variable cost per unit for those costs that are based on
the volume of production in step two. The cost of labor, the price of raw
materials, etc. are some instances of the variable cost of production.
3. Determine the volume of production or the number of units produced in the third
step.
4. In order to arrive at the calculation for total cost, add the average product. Finally,
the formula for total cost can be derived by adding the product of average
variable cost per unit (step 2) and quantity of units produced (step 3) with the
total fixed cost of production.
Concept:
Total Fixed Cost Definition: Fixed cost is the first component of total cost. A quantity of
money that never varies is known as a fixed cost. For illustration, a renter will pay the
Rent is a fixed expense; it is the same each month. Usually, the simplest component of
total cost to calculate is fixed costs. All fixed costs in a specific economic circumstance
are added together to create the total fixed cost formula.

Definition of total variable cost:

Costs that vary (grow or decrease) according to the volume of items produced by a
company or the level of customer service are known as variable costs. Variable costs
might be simple to ignore when figuring out total cost. However, variable costs are
crucial to obtaining a precise total cost estimate. Costs that alter over time are referred
to as variable costs. People who pay for power and water bills are likely aware with the
concept of variable prices, which alter depending on how much electricity is used by a
home. All of the variable costs in a circumstance are added together to create the total
variable cost calculation.
Mathematically, the total cost formula can be represented as,
Total Cost = Total Fixed Cost + Total Variable Cost
It can also be represented in a more advanced way as,
Total Cost = (Average fixed cost + Average variable cost) x Number of units
The average fixed cost (AFC) identifies the cost of producing one unit. It assists in
calculating a company's breakeven point and in examining and reducing a business's
 expenses to increase profitability. By dividing the total fixed cost by the quantity of
production units, one can determine the average fixed cost.
It can be denoted as:
AFC = TFC/ Q
Average fixed cost gives us the fixed cost of producing a single unit. The total fixed cost
is constant regardless of output. On the other hand, the average fixed cost declines with
increased production. The TFC remains constant, and Q keeps rising. Therefore, the
value of TFC/Q also keeps decreasing.
Average Variable Cost: The average variable cost is the variable cost per unit. Average
variable cost is determined by dividing the total variable cost by the output.
The mathematical representation of the average variable cost formula is as follows:
AVC = VC/Q
Where,
AVC = Average variable cost
VC = Total variable cost
Q = Output
The average variable cost can also be calculated in terms of average fixed cost and
average total cost as follows:
AVC = ATC – AFC
Where,
ATC = Average total cost (ATC = TC / Q)
AFC = Average fixed cost
Marginal Cost:
The difference in overall production costs caused by creating or producing one more
unit is known as the marginal cost. Divide the variation in production costs by the
variation in quantity to determine marginal cost. The overall costs involved in producing
an additional good are what is referred to as the marginal cost. Therefore, it can be
evaluated by changes in the costs associated with each extra unit.
Marginal Cost = Change in Total Expenses / Change in Quantity of Units Produced
Conclusion:
Total Total Total Cost Average Average Average Marginal
Quantity Fixed Variable (TFC+TVC) Fixed Variable Total Cost ΔTC/
 Cost Cost Cost Cost Cost (TC / Q) ΔQ
(TFC/Q) (VC/Q)
0 100 0 100+0= 100 100/0=0 0/0=0 0/0=0 0

1 100 20 100+20=120 100/1=100 20/1=20 120/1=120 120-100/1-

0=20
2 100 30 100+30=130 100/2=50 30/2=15 130/2=65 130-120/2-
1=10
3 100 40 100+40=140 100/3=33.3 40/3=13.3 140/3=46.6 140-130/3-
2=10
4 100 50 100+50=150 100/4=25 50/4=12.5 150/4=37.5 150-140/4-
3=10
5 100 60 100+60=160 100/5=20 60/5=12 160/5=32 160-150/5-
4=10

Question No 3A:

INTRODUCTION:
Elasticity of demand:
Elasticity of demand refers to how quickly the amount of a good is demanded in
response to changes in a factor that affects demand. In other words, it is the ratio of the
percentage change in the quantity demanded to the percentage change in a factor that
affects demand.
The following factors can affect demand: the price of the commodity; the prices of
comparable commodities; the income of consumers, etc. Example: Radio costs are
reduced from Rs. 500 to Rs. 400 per unit. The demand rises from 100 to 150 units as a
result.
Price Elasticity is equal to %change in quantity demanded (Ep). Price variation as a
percentage. The change in demand brought on by a change in one or more of the
variables is known as the elasticity of demand variables on which it is dependent.
Options a and c are therefore inaccurate because they refer to a price's
responsiveness. Demand that is responsive to changes in income is known as income
elasticity of demand, whereas demand that is responsive to changes in price is known
as price elasticity of demand.

Inelasticity of Demand:
Demand is said to be inelastic when it remains constant despite changes in price or
other factors. Inelastic products are typically requirements without suitable alternatives.
Utilities, prescription medications, and tobacco products have the most prevalent
inelastic demand among all goods. Because demand for these products is continuous
regardless of price changes, businesses who sell them can be more flexible with
pricing. Utilities, prescription medications, and tobacco products have the most
prevalent inelastic demand among all goods. In general, luxury products tend to be the
most elastic, whereas basics like food and medicine tend to be inelastic.
Cross Elasticity of Demand: The cross elasticity of demand assesses how quickly the
amount of one good is desired in response to changes in the price of another. Demand
cross-elasticity can refer to substitute goods or complementary goods.

Factors that affect Price Elasticity:

Concepts and Applications:
Income elasticity of demand describes how responsive a given good's quantity is to
changes in the real income of the consumers who purchase it.
The percent change in quantity demanded divided by the percent change in income is
the formula for determining the income elasticity of demand. With the aid of income
elasticity of demand, you may determine if a certain commodity is a luxury or a need.
The responsiveness of demand for a certain good to changes in consumer income is
measured by income elasticity of demand. The more closely consumer income
fluctuations affect demand for a certain good, the higher its income elasticity of demand
is. Businesses frequently assess the demand for their products' income elasticity to help
predict the impact of a business cycle on product sales.
Types of Income Elasticity of Demand
There are five types of income elasticity of demand:
1. High: A rise in income comes with bigger increases in the quantity demanded.
2. Unitary: The rise in income is proportionate to the increase in the quantity
demanded.
3. Low: A jump in income is less than proportionate to the increase in the quantity
demanded.
4. Zero: The quantity bought/demanded is the same even if income changes
5. Negative: An increase in income comes with a decrease in the quantity
demanded.
  Initial Income: 20000
 Final Income: 25000
 Change in Income (ΔI): Initial Income – Final Income
 ΔI: 25000-20000 = 5000
 Initial demand :40
 Final demand: 60
 Change in quantity demanded of clothes (Δ Qd) = 60-40 = 20
 Income elasticity of demand: (Δ Qd/Qd)/ (ΔI/I)
 : (20/40) / (5000/20000)
 :(1/2)/ (1/5) =2
 Income elasticity of demand = 2
Conclusion:
The relationship between changes in the quantity of an item or service demanded and
changes in the real income of the customer who purchases that good or service is
known as income elasticity of demand. A product's income elasticity of demand will
indicate if it is a luxury or an essential item. Demand for a good or service is more
sensitive to changes in consumer income the higher the demand inelasticity for it. When
consumer real income declines, a good or service with a high degree of demand
inelasticity will see a reduction in demand. Demand will rise in response to rising real
income. A product or service's demand won't fluctuate much if its demand inelasticity is
minimal significantly change regardless of what happens to the real income of
consumers.

Question No 3B:
INTRODUCTION:
Price Elasticity of Demand:
Demand elasticity gauges how variables like price and income impact consumer
demand for a given good. Demand's sensitivity to price changes is quantified as price
elasticity of demand. The price elasticity of demand (PED) can now be calculated
quantitatively as follows:
Price Elasticity of Demand (PED) = % change in quantity demanded / % change in price
Factors that affect Price Elasticity:
1.Number of Replacements Available
The elasticity of demand for a good will be strong if there are numerous alternatives or
brands available because customers can switch from one brand to another in response
to price changes. For instance, chocolates are a good example of a substitute.
2. Product Price Compared to Income
The demand for goods and services now shifts in reaction to changes in household
income. As a result, demand for goods and services becomes flexible.
3. Substitution Cost
The outcome of switching brands might occasionally be fairly significant. For instance, if
a particular cable service has a lock-in period of deposit, a current customer cannot
switch to that service change to another service, although inexpensive, without losing
the deposit. Hence, the demand becomes inelastic.
4] Brand Loyalty
Sometimes, consumers are loyal to a specific product. In such cases, the price change
in that product will not affect its associated demand. Brand loyalty, therefore, makes the
demand inelastic.
5] Necessary Goods
Necessary goods such as medicines and petrol usually have an inelastic demand. As
consumers have to purchase these goods irrespective of the change in price, the
demand remains unresponsive.
Concept:
 Initial Price = Rs 500
 Final Price (after reduction) = 400
 Initial Demand = 20000
 Final Demand = 25000
 Ed = - p/d * Change in d/Change in p
 -500/20000 * 5000/-100= 5/4 = 1.25
Conclusion:
Elasticity of demand is mostly helpful in business firms' pricing decisions. When making
judgments on the pricing of the items, commercial firms take the price elasticity of
demand into account. This is due to the fact that depending on the coefficient of price
elasticity, changing the price of a product will result in changing the quantity demanded.
This shift in quantity requested as a result of, say, a price increase by a company will
affect total consumer spending and, as a result, will affect the firm's income. Any
attempt by the company to increase the price of its product will result in a decline in
demand if the demand for that product happens to be elastic. It’s overall income. If the
demand for its goods is elastic, it will therefore lose out on the price increase rather than
benefiting from it. On the other hand, if a company's product has an inelastic demand,
raising prices will result in higher overall income. The firm cannot ignore the price
elasticity of the demand for its product in order to set a price that maximizes profits.