Broadly speaking, there are two approaches to demand forecasting– one is to obtain information about the likely purchase behavior of the buyer through collecting expert’s opinion or by conducting interviews with consumers, the other is to use past experience as a guide through a set of statistical techniques. Both these techniques of demand forecasting rely on varying degrees of judgment. The first method is usually found suitable for short-term forecasting, the latter for long-term forecasting. There are specific techniques which fall under each of these broad methods. Judgmental Approaches to Forecasting By their nature, judgment-based forecasts use subjective and qualitative data to forecast future outcomes. They inherently rely on expert opinion, experience, judgment, intuition, conjecture, and other “soft” data. Such techniques are often used when historical data are not available, as is the case with the introduction of a new product or service, and in forecasting the impact of fundamental Continue reading
Economics Concepts
Usage of Macroeconomics for Business Decisions
Decision making is an important job of corporate managers. They have to take decisions regarding the employment of land, labor, and capital in such a manner that output may be maximized at least possible cost. Hence, they are always in search of optimum combination of resources which would maximize corporate profit. Appropriate decision making is the strength of business. Success in business depends on proper and correct decision making. Location, scale of operation, quantum of resources to be employed, marketing etc are some of the important problems calling for decisions in business where macroeconomics may be applied for better results. Macro Economic Analysis Macroeconomics is concerned with the study of aggregate economic variables. It is concerned with the whole economy and studies the level and the growth of national income, the levels of employment, the level of private and government spending, the balance of payments, the consumption & the investment, saving functions Continue reading
Price Analysis and Theory of the Firm
To understand the concept of market and its various conditions, it is necessary to study the theory of the firm. This is discussed as follows: The basic, assumptions of the theory of the firm are as follows: The objective of a firm is to maximize net revenue in the face of given prices and technologically determined production function. A price increase far a product raises its supply, whereas prices increase for a factor reduces its demand. The theory of the firm deals with the role of business firms in the resource allocation process. It uses aggregation as a tactic and attempts to specify total market supply and demand curves. The firm operates with perfect knowledge of all relevant variable involved in making a decision and it acts rationally while doing so. Originally the theory assumed that the firm is operating within a perfectly competitive market. But it has now been Continue reading
The Law of Diminishing Marginal Utility
The law of diminishing marginal utility was first developed by a German economist Hermann Heinrich Gossen. This law is also known as the first law of Gossen. The law of diminishing marginal utility states that the marginal utility derived from the consumption of every additional unit goes on diminishing, other thing remaining the same. The law of diminishing marginal utility is based on two important facts : Though human wants are unlimited, each single want is satiable. Commodities are not perfect substitute for each other. Therefore, as a consumer consumes more and more units of a commodity, intensity of his/her want for the commodity goes on falling and reaches a point where a consumer do not want any more units of the commodity. That is, when saturation point is reached marginal utility of a commodity becomes zero. Thus, as the amount of consumption of a commodity increases, marginal utility decreases. Continue reading
Firm’s Shut-Down Point
At shut-down point one very important question arises i.e. will a firm take an exit as soon as it incurs a loss? The answer will be in the negative. No doubt the aim of the firm is to maximize profit and when it incurs a loss it must try to minimize its loss. This implies that a firm should remain in production at least as long as its loss is minimized. To understand the shut-down point of the firm we shall have to reconsider the cost structure. When the average revenue is below the average cost then the firm is not enjoying profit but is incurring a loss. But the average cost itself is made up of average fixed cost and average variable cost. Now, as long as the average revenue of the firm can cover its variable cost then the firm will continue Continue reading
Time Series Analysis for Business Forecasting
Forecasting is a method or a technique for estimating future aspects of a business or the operation. It is a method for translating past data or experience into estimates of the future. It is a tool, which helps management in its attempts to cope with the uncertainty of the future. Forecasts are important for short-term and long-term decisions. Businesses may use forecast in several areas: technological forecast, economic forecast, demand forecast. There two broad categories of forecasting techniques: quantitative methods (objective approach) and qualitative methods (subjective approach). Quantitative forecasting methods are based on analysis of historical data and assume that past patterns in data can be used to forecast future data points. Qualitative forecasting techniques employ the judgment of experts in specified field to generate forecasts. They are based on educated guesses or opinions of experts in that area. There are two types of quantitative methods: Times-series method and explanatory Continue reading