ANSWER 1

INTRODUCTION
Demand forecasting is a made up of two words: demand and forecasting. Outside requirements
for a product or service are referred to as demand. Forecasting, in general, refers to establishing
an estimate for a future occurrence in the present.
It is a strategy used to forecast future demand for a product or service. It is based on an
examination of prior demand for that product or service in the current market environment.
Demand forecasting should be done scientifically, with facts and events relevant to forecasting
considered.
We might conclude that an attempt made to forecast future demand after gathering information
about various parts of the market and demand based on the past. This is known to as demand
forecasting.
These forecasts are used by all firms to shape their marketing and sales strategies. It makes a
huge profit margin and reduced wastage during production.
Thus, if someone asks what demand forecasting is, we can explain that it is an attempt to assess
future demand after gathering knowledge about many components of the market and demand
that are based on the past.
For example, if we sold 100, 150, and 200 students joined online class in January, February,
and March, we may roughly predict that there would be 150 students in April. However, there
are factors that will affects the result.
CONCEPT & APPLICATION
Demand forecasting helps companies minimize risks and making effective financial decisions
that affect profits, money flow, distribution of resources, expansion chances, inventory
accounting, expenses of the company, employment, and total expenditure. Both operational
and strategic policies are based on demand forecasts.
There is no business if there is no demand. Without a solid grasp of demand, firms cannot make
informed decisions regarding marketing expenditure, production, personnel, and other factors.
Although demand forecasting may never be completely precise, there are methods you can do
to minimise manufacturing lead times, create operational efficiency, save money, introduce
new goods, and deliver a better customer experience.
Steps in demand forecasting are:

Determining the time Selecting the method collecting and adjusting

Specifying the objective Interpreting data
perspective for forecasting data

Fig. Steps Involved in Demand Forecasting

To achieve the targeted goal, demand must be forecasted properly and statistically. As a
result, the following steps are taken to support in systematic demand forecasting:
Step 1- Specifying the objective:
The purpose of demand forecasting must be clearly defined. The target can be specified in
terms of long-term or short-term demand, the entire or only a segment of a market for a firm's
product, overall demand for the product or simply for a firm's own product, firm's total
market share in the industry, and so on. The demand aim must be set before the demand
forecasting process begins, since it will lead the whole research.
Step 2- Determining the time perspective:
Depending on the goal, the demand projection may cover a short time frame, such as the next
two to three years, or a lengthy time frame, such as the next ten years. Many demand factors
can be considered to remain constant or not vary appreciably when projecting demand for a
short period of time (2-3 years). While, in the long run, demand drivers may shift
dramatically. As a result, it is important to identify the time perspective, or the time period
for which demand is to be anticipated.
Step 3- Selecting the method for forecasting:
The method for making the predictions is selected when the aim and time perspective have
been decided. Demand forecasting methods are classified into two types: survey methods and
statistical methods. Consumer survey and opinion poll methods are included in the survey
method, and statistical approaches include barometer and econometric methods. Each
approach differs in terms of the objective of forecasting, the type of data necessary, the
availability of data, and the time span within which the demand is to be projected. As a result,
the forecaster must select the strategy that best meets his needs.
Step 4- Collecting and adjusting data:
After deciding on a method, the following is to collect the necessary data, which might be
primary, secondary, maybe both. The primary data is first-hand observations that have never
been gathered previously. Secondary data are data that is already available. Often, the needed
data is not available, thus the data must be altered, even edited, if necessary, in order to
construct a data set that is compatible with the required data.
Step 5- Interpreting data:
Once the necessary data has been gathered and the demand forecasting technique has been
completed, the next step is to estimate demand for the specified years of the timeframe.
Estimates are often provided in the form of equations, with the outcome evaluated and given
in an understandable and useable format.
Once demand has been forecasted (hopefully more correctly), the budget may be updated to
distribute cash based on growth targets. Demand forecasting assists you in lowering
inventory carrying costs, planning marketing spend, future staffing, manufacturing, and
inventory requirements, and even developing new items. If given steps are followed properly
then there are very high chances of demand forecasting to be nearly accurate.
CONCLUSION
Example multinational alcohol brand, "Red Army Vodka," sought to forecast incoming sales
at the SKU level in order to make better manufacturing decisions. Previously, the corporation
depended solely on historical data to determine which items and quantities to create and supply
to its distributors. Using this technique, the corporation tended to overproduce as a safety net,
avoiding the possibility of shortages and consumers being obliged to purchase a competitor
product at any cost. The firm then resorted to a third party for weekly assistance with demand
forecasting models. Consequently, management were able to make better staffing and
purchasing selections for the raw ingredients required to create their beverages.
The corporation saved $9 million by simply avoiding over-production with accurate demand
forecasts.
So, as it is evident from the examples presented above, demand forecasting in nutshell is
predicting futuristic customer demands to cater the needs emerging in future. It is a predictive
model helping to make intelligent decisions across various domains such as supply chain or
product management etc.

Answer 2
Qua Total Total Total cost Average Average Average Marginal
ntity fixed variable TC= fixed cost variable total cost cost
(Q) price cost TFP+TVC TFP/Q cost TC/Q
(TFP) (TVC) TVC/Q
0 100 0 100 0
1 100 20 120 100 20 120 20
2 100 30 130 50 15 65 10
3 100 40 140 33.33333 13.33333 46.66667 10
33
4 100 50 150 25 12.5 37.5 10
5 100 60 160 20 12 32 10

Let us understand the concept behind each term:

How can you tell if a manufacturer generated a profit that was desirable? The cost of
manufacturing is calculated to do this, but what does it mean?
Cost of production refers to all expenses a company spends when producing a good or
providing a service. Along with operating costs, manufacturing costs often include raw
materials used during production.
A company may spend a variety of costs while creating a product or providing a particular
service.
Most basic kinds of costs of production are:
1. Variable Cost - Variable cost is the cost that changes with change in level of
production. It grows when production volume increases and reduce when production
volume drops. There are no variable expenses related to a production volume of zero.
Examples of variable cost are raw-material, labour expenses, maintenance cost of fixed
assets, etc.
2. Fixed Price- Fixed prices are expenses that are constant regardless of the level of
production, from none to full capacity. Most of production costs change from one
period to the next; however, fixed expenses are generally considered of as time-limited,
meaning that they are set to production for a certain time. Fixed expenses of production
include things like rent, employee salaries, and leased equipment.
3. Total Cost- Total money spent during the development of a product or service are
considered in the total production cost, which takes both variable and fixed expenses
into account. Total cost is the sum of a company's fixed and variable costs. For example,
if a company had ₹2,000 in fixed costs and ₹5,000 in variable costs, its total production
cost would be ₹7,000.
4. Marginal Cost- The money required to produce one more unit of a product, known as
the marginal cost, represents the total cost rise resulting from the additional product.
Since fixed costs do not change with the amount of production, variable expenses have
a greater impact on the marginal cost. Marginal costs are frequently used to determine
how resources should be distributed in order to increase production profits. Marginal
costs are influenced by factors including price competition, mismatched information,
trading costs, and inefficiencies. Marginal cost changes with production volume.
5. Average Cost- The costs associated with creating one unit or providing one service
make up the average cost, which may be calculated in one of two ways: either by
dividing the total production costs by the quantity of product produced. When deciding
how to price a good or service, average expenditures are quite important. In an ideal
world, average costs would be kept to a minimum to boost profit margins without
raising costs.
6. Long-run Cost- The long run is a period during which all cost and production elements
are variable. Companies can change all cost prices over the long term. Since there are
no fixed costs, there is no difference between the LTC or LRTC (long-run total costs)
and long-run variable costs. It indicates a company's capacity to modify its inputs and
gives it the potential to produce goods over time for a lower cost. Long-term expenses
are impacted by a variety of factors, including company growth or contraction,
production volume changes, and market exit or entry.
7. Short-run Cost- Short run means a period in which production can be changed by
changing variable factors. Fixed inputs like cost of building, cost of machinery, etc
cannot be changed. Production can be raised by increasing variable factors. Example-
producer wants to increase output in the short run, then this objective can be achieved
by using more of raw materials and increasing number of workers with the existing
factory building and machinery.

Answer 3(a)
INTRODUCTION
The supply of a product and the demand for it fluctuate in a dynamic market depending on
a variety of circumstances. Prices for products, client income levels, and other factors all
have an impact on consumer demand. On the other hand, a product's pricing, the technology
employed to produce it, its manufacturing, etc. all have an impact on a product's supply.
The businesses need to quantify the impact these factors will have on supply and demand.
 The degree to which the amount required or provided would be impacted by a proportional
change in the determinants is known as elasticity.
A product's demand may be elastic or inelastic. In contrast to inelastic demand, in which
demand of a product does not vary when determinants change, elastic demand is one in
which demand of a product varies.
The idea of demand elasticity is crucial for a nation's government since it aids in the
creation of various tax policies.
The corporations take the elasticity of demand into account when setting prices for various
items.
Types of elasticity of demand are: -
Price Elasticity of Demand
Income Elasticity of Demand
Cross- Elasticity of Demand
In the given numerical we are dealing with income elasticity of demand. Before getting into
solution, brief explanation of income elasticity of demand is: -
The demand for a product on the market is significantly influenced by the consumer's income.
A consumer's desire for goods rises as his income does as well. We may thus save money since
consumer revenue directly relates to the demand for a product. The income elasticity of demand
measures how much a consumer's demand changes in relation to their income.
For instance, when our salaries grow by 5%, we receive additional funds. As we have more
money, we instantly begin making plans to spend it, which increases market demand for
products.
Solution of the given numerical: -
Formula for calculating income elasticity is:
𝐩𝐞𝐫𝐜𝐞𝐧𝐭𝐚𝐠𝐞 𝐜𝐡𝐚𝐧𝐠𝐞 𝐢𝐧 𝐪𝐮𝐚𝐧𝐭𝐢𝐭𝐢𝐲 𝐝𝐞𝐦𝐚𝐧𝐝
Income elasticity of demand (𝒆𝒊 ) =
𝐩𝐞𝐫𝐜𝐞𝐧𝐭𝐚𝐠𝐞 𝐜𝐡𝐚𝐧𝐠𝐞 𝐢𝐧 𝐢𝐧𝐜𝐨𝐦𝐞

𝐩𝐞𝐫𝐜𝐞𝐧𝐭𝐚𝐠𝐞 𝐜𝐡𝐚𝐧𝐠𝐞 𝐢𝐧 𝐪𝐮𝐚𝐧𝐭𝐢𝐭𝐢𝐲 𝐝𝐞𝐦𝐚𝐧𝐝 = (𝐃𝟏 − 𝐃𝟎)/D0

𝐩𝐞𝐫𝐜𝐞𝐧𝐭𝐚𝐠𝐞 𝐜𝐡𝐚𝐧𝐠𝐞 𝐢𝐧 𝐢𝐧𝐜𝐨𝐦𝐞 = (I1-I0)/I0

D0=Initial quantity demanded

D1=Final quantity demanded

I0=Initial real income

I1=Final real income

change in income (𝐈𝟏 − 𝐈𝟎) =

Initial income (I0) =
 Percentage change in income= 5000/20000 = ¼

Change in quantity demand (D1-D0) = 60-40 = 20

Initial demand= 40

Percentage change in quantity demand = 20/40 = ½

Income elasticity = ½ ÷ ¼
4
=½×1

=2

Therefore, the income elasticity of demand is 2.

Answer 3(b)

Price elasticity of demand is a metric to determine effect of price change on the consumption
of a product. For example, if Apple’s iPhone current model is expensive, people wait in queue
for the latest model to get launched and as a result price of existing iPhone goes down to
increase the sales volume of existing product too.

The quantity demanded for an item is measured according to its price elasticity of demand.
Almost all goods see a decrease in quantity requested when prices rise, however certain goods
experience this decrease more than others. When a price increases by 1%, the amount requested
changes by a certain proportion, according to price elasticity.
Formula for calculating price elasticity of demand is:
𝐩𝐞𝐫𝐜𝐞𝐧𝐭𝐚𝐠𝐞 𝐜𝐡𝐚𝐧𝐠𝐞 𝐢𝐧 𝐪𝐮𝐚𝐧𝐭𝐢𝐭𝐢𝐲 𝐝𝐞𝐦𝐚𝐧𝐝
Price elasticity of demand (𝒆𝒑) =
𝐩𝐞𝐫𝐜𝐞𝐧𝐭𝐚𝐠𝐞 𝐜𝐡𝐚𝐧𝐠𝐞 𝐢𝐧 𝐏𝐑𝐈𝐂𝐄

𝜟𝑸 𝑷
𝒆𝒑 = ×
𝜟𝑷 𝑸

Were,
𝒆𝒑 = 𝐩𝐫𝐢𝐜𝐞 𝐞𝐥𝐚𝐬𝐭𝐢𝐜𝐢𝐭𝐲 𝐨𝐟 𝐝𝐞𝐦𝐚𝐧𝐝

P= initial price

𝚫𝐏 = 𝐜𝐡𝐚𝐧𝐠𝐞 𝐢𝐧 𝐩𝐫𝐢𝐜𝐞

Q = initial quantity demanded

𝚫𝐐 = change in quantity demanded

Solution of the numerical given,

Initial price, P = Rs. 500
 𝐜𝐡𝐚𝐧𝐠𝐞 𝐢𝐧 𝐩𝐫𝐢𝐜𝐞, ΔP = Rs. 100 (500-400=100)

initial quantity demanded, Q= 20000

change in quantity demanded, 𝚫𝐐 = 25000-20000=5000

Substituting values in the above formula,

𝜟𝑸 𝑷 𝟓𝟎𝟎𝟎 𝟓𝟎𝟎
𝒆𝒑 = × = ×
𝜟𝑷 𝑸 𝟏𝟎𝟎 𝟐𝟎𝟎𝟎𝟎

= 1.25
Thus, the price elasticity of demand is 1.25 which is greater than 1 which means the
product given in the numerical is elastic.
A good is said to be elastic if a change in price causes a sizable movement in demand; the more
alternatives there are for a product, the more elastic it will be.
Products like cars, appliances, and luxury items that are rarely purchased are examples of
elastic commodities. If the cost of these products is momentarily high, consumers may decide
to put off buying.