1

SUPPLY
SUPPLY refers to a schedule of quantities of a commodity that will be offered for sale at different prices. Meyers defines Supply, as a schedule of the amount of a good tht would be offered for sale at all possible prices at any one instant of time or during any period of time.
2

 Supply is different from Stock. Stock means the total volume of a product which can be brought to market for sale. Whereas, Supply means the quantity of the product which is actually brought to market for Sale. For perishable goods, Stock and supply will be the same. For others, both will differ.
3

Law of Supply
Other things remaining the same, as a price of a commodity rises, its supply also rises, as the price falls, its supply also decreases. Higher the price, the larger is the supply, lower the price, supply will come down.

Supply Curve..
Supply Schedule: Price Per Unit Quantity produced & Rs. Supplied 5 1000 8 5000 10 10000 12 15000 units X= Quantity Y= price
5

Changes in Supply..
The Change in supply refers to Increase or decrease in Supply. If the price increases, supply expands. If the price falls, the supply contracts. In these cases, the supply curve shifts. With the price remaining the same, the supply may increase or decrease.

Causes for Change in Supply..

May be due to cost of production; For agricultural commodities it depends on natural factors like rainfall, climate etc. Changes in technology, methods of production may lead to change. Political disturbances will affect.

Elasticity of Supply
The degree of responsiveness to change in the price of the goods. A relative change in the quantity supplied of a commodity in response to a relative change in the price of a commodity. Measurement= Proportionate change in
supply of a commodity ---------------------------------------------------Proportionate change in the price of a commodity

Factors determining Elasticity of Supply

Nature of Commodity: In the case of perishable goods, the supply is inelastic and in the case of consumer goods, it is elastic. Time Period: In the short period, it is inelastic and in the long period it is elastic. Scale of Production: In small scale of production the supply is inelastic and in large scale production, it is elastic.

 Techniques of Production: High capital intensive industries, supply is inelastic and high labour oriented industries, supply is elastic. Natural factors: The natural factors like, rainfall, climate etc. will make the product elastic or inelastic.

10

REVENUE
The amount of money, which the firm receives by the sale of the output in the market is known as its Revenue. It spends costs while producing, and it receives money while selling. Revenue depends upon the price per unit of the product.

11

Classification of Revenue
Total Revenue: Means, the total sales receipts of the output sold over a period of time. It is the result of factors like, the price per unit of the product and the number of quantities sold. Example, 1000 units sold at Rs.10 will be Rs.10,000/12

 Average Revenue: This is revenue per unit of the commodity sold. It is calculated by dividing the total revenue by the number of units sold. Ex, Rs.10,000/1000=Rs.100 per unit.

13

 Marginal Revenue: It is the addition made to the total revenue by selling one more unit of commodity. Ex, 10 units is sold @ Rs.15=Rs.150/-. If he sells one more unit for Rs.14, 11*14=Rs.154. Rs.4 is called marginal revenue.

14

Relationship between Average Revenue and Marginal Revenue..

When the AR remains constant, MR will also remain constant. A firm can sell large quantities only at lower prices. In this case, the MR also falls.

15

PRODUCT DECISIONS
It is a marketing management concept. Some product will have long life and some short life cycle. The producer should decide, what he should produce more, less or discontinue. The product policy decision, based on consumer demand is important managerial capacity. Good Product provide steady and continuous market for producers and have long life cycle.
16

 The Product: It means anything which is tangible or intangible which provide utility for the user. It may be visible or invisible. Providing of Service is also a product. For producers product is goods or service, which possesses utility and can be exchanged for value.
17

 For Consumers, it is the expectation of satisfying a want. For ex, when he buys a book, it is not the book he is buying but the expectation of acquiring knowledge from the book. * For Society, it dislikes the production of merely pleasing products which give immediate satisfaction but which sacrifices social interests in the long run, like plastics, nuclear bombs etc.
18

 Product is total of physical, economic, social and psychological benefits. Product is defined as bundle of utilities consisting of various product features and accompanying services.

19

Classification of Products
Industrial goods: These are used for the production and are processed further to make it fit for consumption. Ex, Raw materials, Packing Materials, Components (Spare parts), Accessories (Tools), Installation (Capital goods). * Consumer Goods: Which are ultimately consumed by the consumers. Ex, clothing.
20

 Convenience goods: Goods which are regularly consumed, and are available at convenient places for purchase. Ex, Food. Shopping Goods: These are not frequently purchased. Before buying, the consumers visit shops which have identical goods, study the price, quality etc. Specialty Goods: Which are of high value and purchased rarely. Ex, vehicles.
21

Product Policy
It is a guideline to be followed by the product managers to achieve the following objectives:
Launching the Product Maintaining the existing product range Developing new products Maximizing the Profit.

22

 Can be further divided into:

Product mix analysis Elasticity of demand for the product Product elimination R&D for new products Analysis of the competition Product life cycle

23

 The elements are:

Product planning and development Product Line Product standardization Product Branding Product life cycle Product style Product Packaging Product positioning.
24

MARKET
It is a place or geographical area, where buyers with money, and sellers with goods meet to exchange goods for money. Characteristics of Market:
Existence of buyers and sellers of commodity Establishment of contact between them. Distance is not a constraint. Buyers and sellers deal with the same product There should be a price for the product dealt.
25

Classification of Markets
According to Area: It can be local, regional, national or international market. According to time, Short period or Long period. According to competition:
Perfect competetion Imperfect competetion.

26

PERFECT COMPETETION..
Defined as a market form where all sellers are selling homogeneous product at a uniform price. Where there are infinite number of sellers that no one is big enough to have any appreciable influence over market price.

27

Characteristics of Perfect Competition..

Large number of buyers and sellers: In perfect competition, there will be large number of buyers and sellers for the identical product. Neither a single buyer or seller can influence the price. The price is determined by market forces, demand and supply. Sellers accept this price and adjust the production to maximise their profits. Thus, in Perfect competition, the Sellers are Price takers and NOT price fixers and quantity adjusters.

28

 Homogeneous Product: The products must be identical in all respects, same in quantity, size, taste etc. The Products of different firms are perfect substitutes and the cross elasticity is infinite.

29

 Perfect knowledge about market conditions: Both buyers and sellers are fully aware of the current prices and hence price cannot be changed by either of them. * Free entry and exit: There must be complete freedom for entry of new firms or the exit of old. When existing firms, make huge profits, new entrants will come and vice versa.

30

 Perfect mobility of factors of production: The factors of production should be free to move from one industry to another to get better returns. * No transport cost: Since the product is available at the same price at all locations, it is assumed that there will not be any transport cost. If transport is charged, the firms near to the market will charge less price.
31

 Absence of Govt. or artificial restrictions: It is assumed that there are no Govt. controls or restrictions on supply, pricing etc. There is also no collusion among buyers and sellers. The price is free to change according to demand and supply.
32

Firm and Industry..

A firm is a manufacturing unit. It is engaged in the production of a goods which satisfy human wants. It is an enterprise using factors of production and produce a commodity. It may be big or small. Industry refers to group of firms engaged in the production of a specific commodity. The manufacturing process of all firms in the industry will be identical to produce same product.
33

Price and Output Determination..

Maximising Profit is main concern of all firms. Normal profit are the minimum income which the entrepreneur should get in order to stay in business. Normal profits are always included in cost. Normal profits are not covered in maximising profits. It is over the normal profit which the entrepreneur is interested.
34

Equilibrium of Firm-Total Revenue and Total cost..

Attaining equilibrium is fundamental aim. It is a situation where the firm is earning maximum profits. A firm is said to be in equilibrium when it has no tendency either to increase or contract its output which gives maximum profits. Hence it is a situation where firm is earning maximum profits at fairly reasonable levels of output.
35

 The traditional way to find equilibrium is through comparison of total cost and total revenue. Till profit increases, the producer will keep on increasing his output. The point where the firm is making neither profit nor loss is called the Break Even point.
36

Advantages of Perfect Competition..

The consumer has perfect knowledge, and hence he will not purchase at higher price. The price is equal to the minimum average cost, beneficial to the consumer. Firms are price takers and producers will not incur more on advertisement and promotions. In the long run, maximum economic efficiency in production is achieved.
37

MONOPOLY
It is a market structure, in which there is a single seller for the product and has no close substitute and there are barriers to entry by new firms. Here a single producer is facing a large number of buyers for his product. He can change price and can earn huge profits.
38

Characteristics of Monopoly..
Single Seller: Since there is one single seller, he can control the price, production etc., but he cannot control the demand as there are more buyers. No close substitute: The buyers have no alternative or choice. Price: Since monopolist has control over supply, he can increase price, use different price for different consumers.
39

 No entry: There is no freedom to other firms to enter. The barriers may be legal, technological, economic or natural obstacles. Firm and Industry: Under monopoly, there is no difference, since there is only one firm that constitute the whole industry.

40

Causes for Monopoly..

Natural: Some minerals are available only in certain regions. Ex, South Africa has monopoly over Diamonds, Oil in Middle East. Technical: A firm can have specialised knowledge on manufacture etc. Ex, Coco Cola.
41

 Legal: It is achieved through Patent, Trade Mark, etc. Large Amount of Capital: Certain industries are capital intensive. This may give rise to monopoly. State: Govt. will have sole right of producing and selling certain goods. Ex, Electricity and Railways.
42

Price and Output Determination..

A monopolist firm tries to maximise profits. The Price is determined by the Firm itself. He is a price creator in the market. In perfect competition, the firm is price taker and can sell any quantity at the price given by the industry. Here, the firm is a quantity adjuster.

43

Advantages of Monopoly
Large scale production possibilities, which will end in reduction of costs and the benefit may be passed on to consumer. Monopolist have vast financial resources, which will be used for R&D. The weaker firm can come together and can form monopoly.

44

Disadvantages of Monopoly..
Price will always be higher; He restricts the output to create demand to get more profits. Different prices for different consumers He promotes his self interest Wealth is concentrated in few hands.

45

Methods for controlling Monopoly..

Legislative Method: By Laws, the govt. can control. Like MRTP Act. Controlling price and output: Govt will fix price like Pharmaceuticals industries. Taxation: By following differential taxation system, can be controlloed. Nationalisation: By nationalising the companies the Govt. can take over those companies which are exploiting consumers. Consumers Association.
46

Price Discrimination
Means the practice of selling the same commodity at different prices to different buyers. The sale of technically similar products at prices which are not proportional to marginal cost.

47

Conditions for Price Discrimination..

The demand must not be transferable from the high priced market to low priced market. The monopolist should keep he two markets separate so that the commodity will not be moving from one market to another.

48

Types of Discrimination..
Personal: Charging Different price to different people. Local; Charging different price to different markets. According to Trade or Use: Different price charged to different use. Ex, Electricity for domestic and industrial use.

49