Many factors affect the demand for a product, which is a concern for management
ID: 1193016 • Letter: M
Question
Many factors affect the demand for a product, which is a concern for management and the decision-making process. To correctly assess the demand for their products, managers must determine the effect of all relevant variables. Select a particular industry or product and define the following variables:
Inferior versus normal goods
Substitution and income effects
Derived demand
Changes in real and projected incomes
Discuss how these variables can affect the demand for your product or industry and what methods could be used to estimate the effect of these variables.
Consider this statement: Long-run cost curves are planning curves, while short-run cost curves are operating curves. Do you agree or disagree with this statement? Support your answer with an appropriate rationale. In your response, use the various cost concepts you have learned, as well as the concepts of economies and diseconomies of scale, incremental costs, and sunk costs. Provide examples and applications of these costs in your response.
Explanation / Answer
Many factors affect the demand for a product, which is a concern for management and the decision-making process. To correctly assess the demand for their products, managers must determine the effect of all relevant variables. Select a particular industry or product and define the following variables:
Inferior versus normal goods
Substitution and income effects
Derived demand
Changes in real and projected incomes
Discuss how these variables can affect the demand for your product or industry and what methods could be used to estimate the effect of these variables.
Answer: Normal Goods and Inferior Goods: Normal goods are those goods whose demand rises with the rise in income. On the other hand, the demand for inferior goods like coarse grains tends to decrease with increase in income, and vice-versa. Inferior goods are those goods whose demand falls with the rise in income.
All methods of demand forecasting can be used for predicting demand with these variables. we need statistics on people's expectations, cross elasticity fo demand for our product, income elasticity fo demand for our products, demand of other goods and services that create derived demand for our goods and services to estimate the effect of these variables.
Consider this statement: Long-run cost curves are planning curves, while short-run cost curves are operating curves. Do you agree or disagree with this statement? Support your answer with an appropriate rationale. In your response, use the various cost concepts you have learned, as well as the concepts of economies and diseconomies of scale, incremental costs, and sunk costs. Provide examples and applications of these costs in your response.
Answer: Yes, I agree with this statement. long run cost curves are planning curves and short run cost curves are operating curves. Long run is a time period when a firm can change all factors of production. it is possible only when a firm is planning. when plans are executed, at that time, it is simply not possible to change all factors of production. for example once a firm buy land for plant, land becomes a fixed factor. therefore, long run cost curves are callled plannning curves. on the other hand, when actual operation starts, firm acts according to short run where some factors of production are fixed while others are variable. therefore, short run average cost curves are operative curves.
does firm gets Increasing Returns to Scale?
As the firm expands production, it gets many advantages, technically known as economies of scale. Such Economies may be internal economies or external economies. Internal economies are the economies which are firm specific. These economies are available to a particular firm in the industry, which seeks to increase its level of output by increasing its scale of operation.
External Economies are the economies which are Industry Specific. These economies are available to all firms in the industry when the scale of operation as an industry as a whole expands. These can be:
Why does firm gets Decreasing Returns to Scale?
There comes a stage when all economies of scale have been fully exploited. Then firm starts getting constant returns to scale. With further expansion in scale, diseconomies of scale may arise which may be internal or external.
Internal Diseconomies are the Firm Specific Disadvantages. External Diseconomies are the Industry Specific Disadvantages.
Internal diseconomies may be:
External diseconomies may arise due to increase in factor prices, higher transportation cost, pollution cost; government may put restriction on expansion of the industry.
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