Question

Managerial Economics (6) “More sales more profits”, do you agree ? Explain your answer extensively in detail. Base your answer with theories.

Managerial Economics (7)

What are the four major ways by which management can control inventories according to Plossl and Welch? Explain extensively.

Managerial Economics (8)

What is the main difference between payback period and the net present value methods of capital budgeting? Why should the time value of money be considered in evaluating projects? Give examples. Explain in detail.

Answer 1

6.

agreement or disagreement with respect to the statement depends upon the elasticity of demand of the product. I agree with the statement when the demand is inelastic in nature. It means that rise in price will not affect the demand and more sales at higher prices, will deliver higher profit.

Though, I do not agree with the statement if the demand is elastic and prices are kept low with to boost the sales. In this case, an increase in sales, will decrease the profit as prices are kept low to boost the sales.

The another factor is the marginal revenue and marginal cost.

All other factors remain constant, sales will only increase profit, up to the level that Marginal cost becomes marginal revenue. If marginal cost exceeds marginal revenue, and sales takes place, then it will create losses to the company.

Hence, statement requires close inspection in terms of , elasticity, MR and MC show agreement or disagreement with the statement.

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