managerial economics

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managerial economics chapter four demand and demand forecasting by: teklebirhan a. (asst. prof) e-mail: tbalemnew@gmail.com 1 aau , 2024 2 business enterprise needs to know the demand for its product.  any business organization must know current demand for its product in order to avoid underproduction or over production. the current demand should be known for determining pricing and promotion policies so that it is able to secure optimum sales or maximum profit. 4.1. introduction 3 unless and until knowing the demand for a product how can we think of producing that product. therefore, demand analysis is something which is necessary for the production function to happen. demand analysis helps in analyzing the various types of demand which enables the manager to arrive at reasonable estimates of demand for product of his company. managers not only assess the current demand but he has to take into account the future demand …

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ethods of forecasting 4.4.1. qualitative forecasting 6 qualitative forecasting relies on one or more individuals to generate forecasts without using mathematical models. it is subjective in nature. some of the common qualitative methods of forecasting are: 1) opinion survey method/sales- force –composite method/ collective opinion method.  the company asks its salesmen to submit estimate for future sales in their respective territories.  this method is more useful and appropriate because the salesmen are more knowledgeable about their territory. cont….. 7 2) expert opinion: apart from salesmen and consumers, distributors or outside experts may also be used for forecast. 3) delphi method: a panel is selected to give suggestions to solve the problems in hand.  both internal & external experts can be the members of the panel.  panel members are kept apart from each other and express their views in an anonymous manner. here is an attempt to …

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.  a firm that has been existence for long period will have accumulated considerable data on sales pertaining to different time periods. – the data is time series data. such data can be analyzed in order to establish the nature of trends in sales over a period so that possible trend in future can be inferred. the past trend is projected in order to interpret the future trend. a trend line can be fitted through a series of statistical techniques such as the method of least square a) trend projection method 11 the focus of time-series analysis is to identify the components of change in the data  a trend is a long-term increase or decrease in the variable.  the seasonal component represents changes that occur at regular intervals.  cyclical patterns is a sustained periods of high values followed by low values.  the remaining variation in …

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= 44 + 30 = 74 y 1994 = 44 + 6 x (6) = 44 + 36 = 80 thus, forecast sales for 1994 would be 80 thousand based on trend projection equation. cont….. 15 these methods utilize historical data for calculating average of the past demand. this average is then used as a forecast. different ways of calculating an average for short range forecast include the following given below; i) simple average method: in this method an average of past data in which the demands of all previous periods are equally weighted, is calculated. b) averaging methods 16 simple average = 푆푢푚 표푓 푑푒푚푎푛푑푠 푓표푟 푎푙푙 푝푎푠푡 푝푒푟푖표푑푠 푁푢푚푏푒푟 표푓 푑푒푚푎푛푑 푝푒푟푖표푑푠 example: demand of an item in a firm has been 180, 160, 170 and 190 items in each of the last four quarters. forecast the demand of this item for the current quarter based on simple …

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nt….. 20 iii) weighted moving average: this method incorporates some weights of old demand. greater weight is given to the more recent data. weighted ‘n’ period moving average forecast for the period (t +1) = sum of demand times a weighted factor over desired periods in the moving average. example: from the monthly data given below, compute a weighted three months moving average for july, where the weights are 0.5 for the latest month, 0.3 weights and 0.2 for the other months respectively. cont….. 21 solution: a three-month weighted moving average forecast for july; = (푊 푗푢푛푒 푋 퐷 푗푢푛푒) + (푊 푚푎푦 푥 퐷 푚푎푦) + (푊 푎푝푟푖푙 푥 퐷 푎푝푟푖푙) = (0.5 푥 500) + (0.3 푥 450) + (0.2 푥400) = 250 + 135 + 80 = ퟒퟔퟓ 푼풏풊풕풔 cont….. 22 the forecast can be based on the old calculated forecast and the new data. the weight …

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managerial economics chapter four demand and demand forecasting by: teklebirhan a. (asst. prof) e-mail: tbalemnew@gmail.com 1 aau , 2024 2 business enterprise needs to know the demand for its product.  any business organization must know current demand for its product in order to avoid underproduction or over production. the current demand should be known for determining pricing and promotion policies so that it is able to secure optimum sales or maximum profit. 4.1. introduction 3 unless and until knowing the demand for a product how can we think of producing that product. therefore, demand analysis is something which is necessary for the production function to happen. demand analysis helps in analyzing the various types of demand which enables the …

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