The Price Elasticity Of Moisturizing Cream

The Price Elasticity Of Moisturizing CreamConsidering the above table, we find that the sum demanded has change magnitude from P0 to P4. simply we do not see a portentous decrease in the scathe of the product. Does that mean that moisturizing balm is price nonresilient? The answer to the question is NO. Moisturizing pickax is definitely price elastic. But price is not the only factor that affects the demand of the option. The some other major(ip) factor that affects the quantity demanded is Advertising woo.Moisturizing cream basin be handed as a non necessary luxury undestroyable advantageously. According to Sethuram and Tellis ( in Farnham 2010,p 96), durable goods wee-wee lower price elasticity than non-durable goods. Usually receivers relate a mellow price of durable good with a high quality. because they can patch up up higher price for a product. The non durable goods be more(prenominal) price elastic since consumers atomic number 18 not ready to pay mo re price for an item that provide not last for a long time.According to the marketplaceing study of Sethuraman and Tellis (in Farnham 2010 p 97) producers should concentrate their strategies on denote policies for cosmetics, luxury goods and new products. Higher denote cost will benefactor in creation of brand value and increase the gross sales of the product. Higher advertizement will project the superiority of the brand with observe to the other brands (if make correctly).As seen from the table, the demand thread drawn would sacrifice positive slope. A demand curve with positive slope is vulgar in markets that exhibit Conspicuous Consumption and the products that are categorized as Veblen goods.In the coarse-grained, the highest market considers were experienced by sloppeds that had the highest advertising cost.Considering the performance of the vanquish 2 homes on the background of win and market share for flipper periods of GRITAIN MOISTURIZING CREAM INDUSTR YIt can be clearly seen that the market share is influenced by the advertising cost. In P1, inviolable 38 had a market share of 32.8% though its price was much higher than dissolute 35. This shows that when the advertising is higher, the quantity demanded for products like moisturizing cream and other beauty products is higher, irrespective of the country. permit us analyse the elasticity of Cement by considering the PIELAND CEMENT INDUSTRY. once again considering the performance of the best 2 firms in the first five periods on the basis of market share and profit we crapOn considering P2, it can be found out that the market share of firm 7 is much higher than its closest competitor firm 9 in spite of the fact that firm 9 spent heavily on advertising. This shows that consumers demand more units of cement if it is cheaper, making it super price sensitive. It has a low price elasticity of demand. It was observed that making profit was super difficult in the cement industry. A r ight mix of advertising and pricing strategy was required. A precise low price would help in achieving a good market share but would make it very difficult to break even.According to Dr. Divina M. Edralin (2004) The cement industry is highly capital-intensive, as it needs substantial investment fundss in fixed assets like comprise and equipment. The industrys main product is characterized by low price elasticity of demand, extra shelf life, and expensive handling and transportation be for imports. According to Dr Edralin, globalization has provided opportunities to transnational cement corporations to monopolize the worlds cement industry by managing the economies of master because of their large capital investments and thus making it difficult for smaller internal firms/factories producing cement.PART B PRODUCTION AND COST ANALYSIS (SHORT RUN AND desire RUN)SHORT RUNConsidering the firm 28 in Pieland Moisturizing Cream Industry, the minuscule croak cost functions can be in terpreted by look at the meat fixed and variable quantity cost, average fixed and variable cost.The functioning of the firms of various industries from P0 to P4 can be considered as short run as the firms were not allowed to increase their capacity. thusly the capital input rest constant in those periods.Fixed Costs = Overhead costs + occupy on negative balance + advertising costs + depreciation (These costs are not related to the production). As advertising costs brace increased because of managerial decisions, they can be categorized as discretionary-fixed costs. derogation is considered as a fixed cost because it is calculated on the basis of time and not on the basis of number of units that a motorcar produces. inconsistent costs = $2 per pot of moisturizing creamDepreciation is 5% per period pay calculation was done as total revenue enhancement total costsIf we combine the above ii periods for firm 28, we sacrifice fall Revenue = 183200(period 1) + 252000(period 2 ) = $435200Total Costs = 159800(period 1) + 191698(period 2) = $351498Total Profit = $83702Total sales = 46900 potsProfit per pot (combined P1 and P2)= $1.78Profit for P1= 23400 (183200-159800) = Profit per pot = 23400/22900 = $1.02Profit for P2=60302 (252000-191698) = Profit per pot = 60302/24000 = $2.51As we can see, the profit has increased in the period 2. In real life situations where most of the durable products are quite price elastic, the managers have constraints of not increasing the product price (unlike the venture). The costs of running the firm increases gradually as more competitors show the industry and companies spend more on advertising costs. This costs the meshing to reduce after some time and the firms are forced to innovate new products and strategies.This can be overcome by the economies of scale as well as by increasing the price per unit. In a luxury non-essential item such as moisturizing cream, it can be done by increasing the price per unit as moisturi zing cream is more advertizing elastic and consumers are ready to pay a higher price. This can be seen in the prices of the best performing teams of Pieland moisturizing cream industry. comely 5 periods have been sh throw as the firms had the provision to increase their capacity from P5.If we consider the Pieland Cement Industry and analyse the pricing strategy of the best two firms we can interpret that to survive in the industry, it is very essential to proceed the price low as cement is not very advertisement elastic and highly price elastic.This makes cement industry in every country highly vulnerable to competition. Hence the cement firms have to guide in collusion to survive in the market. The cartelisation mode of functioning is very common in this industry. The case of collusion is not seen in the game as two out of four firms have do bulky losses.LONG RUNAccording to Farnham (2010167) moisturizing cream industry in the game has adopted the capital intensive method of p roduction because there is a provision of buying large large quantities of capital investment.Considering the firms of Pieland Moisturizing Cream, a proportion can be done between capacities of two firms one which did not increase the capacity and the other which increased the capacity.The cost per unit for distributively of the above periods for the firms would beThe cost per unit is calculated as (Overhead+Variable costs)/ Units produced for simplicity.The cost due to negative interest and the advertising cost have not been considered for the calculation. Above it can be seen that the cost per unit in P1 for firm 25 is more than firm 28. This is because the capacity utilization of firm 25 is lesser than firm 28. Firm 25 produced 12000 units in P1 whereas firm 28 produced 18000 units in P1.As it can be seen in slacken B.7, the cost per unit for firm 28 has reduced consistently from P1 to P7. It is easier for firm 28 to breakeven quickly and sell the units at reduced prices and d rive firm 25 out of competition. However, it was observed that when the capacity of the firm was increased from 45000 to 50000 units, the cost per unit came out to be the same $3.87. This can be correlated with the graph of lower limit Efficient Scale. According to Farnham(2010178), the Long Run bonny Cost curve becomes essentially flat with neither further economies nor diseconomies of scale.$4.11$3.91$3.87Q=35000 units ( Minimum Efficient Scale )The Long run average cost curve for firm 28 depicting Minimum Efficient Scale.Capacity enjoyment Ratio (Production/Capacity) of Firm 28 is higher than Firm 25 in Pieland Moisturizing Cream Industry. The profligates not sold are in addition used to acquire whether the firm needs to increase its capacity or not. Firm 28 has a higher capacity utilization ratio and has sold stock in most of its periods. So it gives it the incentive to expand its through investment in new structures and investment. Usually a ratio higher than 85% gives the incentive to increase the capacity according to Farnham (2010 p 352). For firm 28 the ratio is more than 95%.PART C OLIGOPOLY AND GAME theoryThe game theory models can be linked to the PIELAND MOISTURIZING CREAM industry. Moisturizing cream is highly advertisement elastic. This makes all the firms in the industry incur high advertising costs in from each one period. Consider the advertising costs for some of the periods for various firmsAs it can be seen, all the firms in the industry have constantly increased their advertising costs. It started with $30000 at P0 and terminate up in millions. Majority of the firms ( 3 out of 5) suffered huge losses because of this. Advertising heavily in every period was highly essential to survive the competition and sell the product (referring table A.1 above).Thus in every period advertising heavily was the dominant strategy for each firm. If the firms had co-ordinated their strategies, the advertising costs would not have reached millions. T hey could have sold the cream pots at higher price with minimum advertising cost. All firms end up worse off than if they had been able to co-ordinate their strategies. All firms became prisoners of their own strategy particularly firm 25, 26 and 27 considering the lowest profit figure in table C.2 (Farnham 2010 p258).Though firms 28 and 29 made profits their profits could have been higher if the firms in the industry had co-ordinated and followed a co-operative oligopoly model. But the fear of punishment prevented the firms to collude (punishment from anti-trust/anti-cartel in real world).If the advertising costs of Firm 28 are considered in particular, they have increased with every period. However, the advertising cost in P14 of Firm 28 was the last in the group. It was known well in advance that P14 would be the final period of the game. If Firm Id 28 had kept advertising costs identical to the other firms and for some reason it would have been unable to have good sales, my f irm (firm 28) would have incurred huge loss. The lesser revenue would not have negated the effect of high advertising cost and my existing positive balance would have turned into negative. This made me reduce the advertising. The price was also brought conquerward ( as seen in table C.3). The highest risk that Firm 28 go about during this period was Overhead cost = (-$84213) Variable Cost = (-$63000) (production was brought down as lesser sales were anticipated) Advertising = (-$100000) Total = (-$247213)The positive interest was $2897. Thus the net risk becomes (-$244316). The balance in firm 28 was $289728.51 as on P13. Thus if there are no sales in P14, there is still a positive balance of around $45412.51 ($289728.51 $244316).I considered this strategy as the best for my firm regardless of the strategy that other firms choose. I consider this scenario as the Nash Equilibrium because from a set of strategies, I have chosen the best strategy considering that the other firms wi ll also choose their respective best strategy (Farnham 2010 p 258).PART D IMPACT OF MACROECONOMYThe macroeconomic scenario can be evaluated on the basis of the total quantity demanded for a particular product. Let us consider the Pieland and Gritain Moisturizing cream industryAs it can be seen from the table, the quantity demanded for units in Pieland as well as Gritain has grown in each period (except in P14 for Pieland). However, the quantity demanded curve shows a steep slope in Pieland in comparison to Gritain. This shows that the return rate is higher in developing countries than the real ones.The quantity demanded has a lesser slope for periods between P1-P4 since the monetary insurance indemnity was deflationary. The consumption of a non essential luxury item such as moisturizing cream is less. However, from P5 the consumption increased as the monetary indemnity was reflationary (interest place were cut) causing people to spend more on cosmetics. Reflationary fiscal pol icy causes the reduction of either the direct or indirect taxes. This leads the people to consume more.The reflationary policy caused accelerated growth from period 10. But accelerated growth caused inflation. It can be inferred from the graph that the governments and banks increased the taxes and interest rates. This brought the consumption down which is apparent from P13-P14. The effects of fiscal and monetary policy were more easy visible on emerging/developing economy of Pieland than on Gritain since Pieland has a higher growth rate. A suitable monetary and fiscal policy will affect the markets of Pieland more than Gritain.