Production involves a series of activities that convert the
inputs into outputs that people can use for the fulfillment of their needs.
Production is the transformation of inputs into output. Input is anything that
is utilized in the creation of a commodity and Output is something that gets
produced at the end of the production process. The relationship between inputs
and outputs is defined using Production Function.
What is Production Function?
Production Function is the
relationship between physical inputs (land, labour, capital, etc.) and physical
outputs (quantity produced). It is a technical relationship (not an economic
relationship) that studies material inputs on one hand and material outputs on
the other hand. Material inputs include variable and fixed factors of
production.
Algebric or Mathematical Function:
In
a standard equation, the Production function is represented by Q, Labour
(Variable element) is represented by L, and Capital (Fixed element) is
represented by K.
Q = f(L,K)
Assumptions of Production Function:
1)Both inputs and outputs are divisible.
2)There are only two factors of production,
i.e., land (Variable element) and capital (Fixed element).
3)Factors of production are imperfect
substitutes.
There are two methods in which
demand forecasting can be done i.e (A) Survey Methods and (B) Statistical
Methods.
Survey Methods::
Market Research
In this research technique,
consumer-specific survey forms are sent in tabular format to get insights that
an organization can’t get in general from internal sales. It gives better
information about the type of customers and demographic data which will help to
target future markets. Market Research helps companies to know their customer
base better, intentions to buy products or services, thereby help to estimate
the future demand.
Sale Force Opinion
This method collects data
from sales groups to forecast demand. Salespeople of an organization are close
to their customer bases, can generate valuable information on customer needs,
behaviour, sales and feedback and can also give information about the
competition in markets.
Delphi Technique
In Delphi Method, an organization
hires a group of external experts, and generates a forecast based on their
market knowledge. After this process forecasts are shared among the experts
anonymously, hence experts get influenced by each other’s forecasts. Now the
experts are asked again to generate a forecast and this process is repeated
until all experts reach a near consensus scenario. The process is intended to
permit the experts to expand on one another’s information and assessments.
Statistical Methods:
1. Trend Projection
It is the most common demand
forecasting technique used by organizations. Trend Projection uses
past sales data to project future sales. This technique can be used by
organizations with a sufficient amount of past sales data (typically more than
18 to 24 months). The data is arranged in chronological order to form a time
series, time series depicts the past trends based on which future market trends
can be predicted.
Barometric Forecasting Technique
In Barometric Technique, demand is
forecasted based on the basis of past events or the events occurring in the
present. It is done by analyzing economic indicators such as saving,
investment, and income. This method can be implemented even in the absence of
past data. For example, if the government plans for a large housing project,
this indicates that there would be high demand for construction materials in
the future.
Econometric
Forecasting Technique
This
technique combines past sales data with the factors that influence the demand
to create a mathematical formula to predict future demand. It finds the
relation between the dependent variable and the independent variables. If only
one factor affects the demand it is known as a single variable demand function
or simple regression. Whereas if there are multiple factors affecting the
demand, it is known as multiple variable demand function or multiple
regression.
Regression
Equation : Y = a + bX , Y is the forecasted demand.
Conclusion
Demand forecasting helps
organizations to make better business decisions. Based on the business
requirements, sales data, market research, and economic factors different
demand forecasting techniques can be used. It is often detailed, and expertise-driven.
Elasticity of demand is the responsiveness of the quantity
demanded of a commodity to changes in one of the variables on which demand
depends. In other words, it is the percentage change in quantity demanded
divided by the percentage in one of the variables on which demand depends.”
The variables on which demand can depend on are:
Price of the
commodity
Prices of related
commodities
Consumer’s income,
etc.
Let’s look at some examples:
The price of an apple
falls from Rs. 50 to Rs. 20 per unit. As a result, the demand increases from 10
to 15 units.
Types of Elasticity
of Demand
Based on the variable that affects the demand, the
elasticity of demand is of the following types.
Price Elasticity:
The price elasticity of demand is the degree of responsiveness
of the quantity demanded to change in
the price of a commodity. It is assumed that the consumer’s income, tastes, and
prices of all other goods are steady or constant. It is measured as a
percentage change in the quantity demanded divided by the percentage change in
price.
Ep= Percentage Change
in Quantity demanded
Percentage change in price
Income Elasticity:
The income elasticity of demand is the degree of
responsiveness of the quantity demanded to a change in the consumer’s income.
EI= Percentage Change
in Quantity demanded
Percentage change in Income
Cross Elasticity:
The cross elasticity of demand of a commodity X for another
commodity Y, is the change in demand of commodity X due to a change in the
price of commodity Y.
EC= Percentage Change
in Quantity demanded (X)
Percentage change in Price (Y)
TYPES /DEGREES OF ELASTICITY OF DEMAND
Perfectly Elastic Demand (E=∞):
A very small change in price would result in huge or
infinite change in the quantity demanded of the product. Hence the sellers
would not change in price and this case rarely found in practice.
Perfectly Inelastic Demand (E=0):
Despite an increase or decrease in its prices of a
commodity, there won’t be any change in the quantity demanded. If a price of
product increases by 50%, even then, if there is no change in the quantity
demanded, it is said to be perfectly inelastlic demand.
Unitary Elastic Demand (E=1):
Price elasticity of demand is in unity when the change in
demand is proportionate to the change in the price.
Elastic Demand (E>1):
If the percentage in change in quantity demanded is greater
than the percentage change in price, it said to be Elastic demand.
Inelastic Demand(E<1):
If the percentage in change in quantity demanded is less
than the percentage change in price, it said to be inelastic demand.
There are many determinants of demand, but the top five
determinants of demand are as follows:
1) Product cost: Demand of the product changes as per the
change in the price of the commodity. People deciding to buy a product remain
constant only if all the factors related to it remain unchanged.
2) Taste and preferences of consumers: The demand for a
commodity/product depends on taste and preferences of consumers. If consumer
develops taste or preference over a commodity, they will buy the product
irrespective of its high price.
3) The income of the consumers: When the income increases,
the number of goods demanded also increases. Likewise, if the income decreases,
the demand also decreases.
4) Costs of related goods and services: For a complimentary
product, an increase in the cost of one commodity will decrease the demand for
a complimentary product. Example: An increase in the rate of bread will
decrease the demand for butter. Similarly,
an increase in the rate of one commodity will generate the demand for a
substitute product to increase.
4) Consumer expectation: High expectation of income or
expectation in the increase/decrease in
price of a good also leads to an increase/decrease in demand.
5) Growth of population: Another important factor that
affects the market demand. Increase in the population, naturally demands more
goods.
6)Tax rate: This
also affects the demand, like high tax rate means low demand for goods and vice
versa
7) Weather conditions: The demand for certain products
purely depends on climatic and weather conditions. Eg: High demand for Soft
drinks in summer, high demand for jackets, & woolen clothes in winter.
8) Availability of Credit: Availability cheap credit would
increase the demand for durable goods , etc
9) Circulation of Money: Expansion and contraction of
quantity of money will affect the demand
Boston consultancy group growth share Matrix commonly known
as BCG Matrix is a famous portfolio analysis technique developed by Boston
consultancy group and it was developed for managing portfolio of different
business units. The BCG Matrix shows a relationship between products that are
generating cash and products that are eating cash.
The BCG Matrix shows various business units on a graph of
market growth v/s market share relative to competitors. Resources are allocated
to business units according to where they are situated on the graph.
BCG Matrix
(A) Cash cows – It is a business unit with large market
share in a mature and slow growing industry.
Cash cow require little investment and generate cash that
can be used to invest in other business
units. These a generally large and mature business units reaping
the benefits of experience and
customer loyalty.
(B) Star – Stars are business unit that has a large market
share in a fast growing industry. It may generate
cash but due to rapid growing market it requires investment
to maintain its needs. It is a high growth –
high market share business unit. These business units are
generally in the growth stage of its product
life cycle and not self sufficient in terms of its financial
needs.
C) Question mark? – These are also called the problem child.
It is a business unit which has a small market share in a high growth market.
Such a business unit requires huge investment to grow market share but whether
it will be a star or not is unknown.
(D) Dogs – These are business units with a small market
share in a mature industry .A dog may not
require substantial cash but it ties up capital that could
be invested elsewhere. Such a business unit
must be liquidated unless it has some special strategic
purpose or prospects to gain market share in
the future.
The BCG matrix provides a framework for allocating resources
among different business units and
allow one to compare many business units at a glance.
CLICK THE ABOVE LINK FOR VIDEO
Criticism of the BCG
Matirx
♦ It
is criticised that it does not reflect the true nature of the business. The BCG
Matrix considers only
two dimensions High and Low for measurement and while a
business may enjoy a high, medium or
low market share/growth rate.
♦ It
assumes that high market share always leads to high profits which is not be
true. High Costs are
involved in business units with large market share which may
lead to normal profits.
♦
There are many parameters to measure profitability other than growth rate and
market share. The
BCG Matrix ignores all other indicators of profitability.
♦ The
model does not clearly define the markets.
♦ Long
term profitability of a business depends upon a variety of factors which may
not be related to market share or growth.
Economic principles that managers
should keep in mind are:
The
incremental principle:
The decision is sound if it increases
revenue more than increases cost or if it reduces cost more than reduces
revenue.
The
principle of time perspective:
A decision should consider both the
short-run and long-run effects on revenue and cost, giving appropriate weight
to the most relevant time period in each decision.
The
opportunity cost principle:
Decision-making involves careful
measurement of the sacrifices required by the various alternatives.
The discounting principle:
If a decision affects cost and revenue
at future dates, it is necessary to discount these costs and revenue to present
values before a valid comparison of alternatives is possible.
SOME IMPORTANT QUESTIONS FOR UGC NET (TOURISM & ADMINISTRATION)
1. MANAGERIAL GRID OF LEADERSHIP WAS DEVELOPED
BY –
It's
also known as the Managerial Grid,
or Leadership Grid, and was
developed in the early 1960s by management theorists ROBERT BLAKE AND JANE MOUTON. (1964)
2. Pro-poor tourism (PPT) is defined as
tourism that generates net benefits for the poor. Benefits may be economic, but
they may also be social, environmental or cultural. Pro-poor tourism is not a
specific product or sector of tourism, but an approach to the industry.
3. WHAT IS DEMONSTRATION EFFECT-?
ITS THE ATTITUDE OF COPYING TOURIST BEHAIOUR
4. THEHall
OF Fame award for Contribution to Tourism and Hospitality from IATO in 2017 is
– J K MOHANTY
5. NATIONAL COUNCIL FOR HOTEL MANAGEMENT AND CATERING TECHNOLOGY (NCHM&CT)_WAS ESTABLISHED IN - 1982 (NOIDA UP)
