Managerial_Economic_Viewpoint_of_Keya_Cosmetics_Ltd

Keya Cosmetics Ltd Demand and Supply Analysis of Keya Super Beauty Soap: In 2011-2012 the net turnover of Keya Cosmetics Ltd was TK 2,405,182,974. We logically assume that approximately 20% of the net turnover that is TK 480,000,000 was that revenue came from the selling of Keya Super Beauty Soap. We also assume that the average price of soap is TK 30. So approximately 16,000,000 pieces soap was sold in 2011-2012. We know that market equilibrium is a situation in which, at the prevailing price, consumers can buy all of a good they wish and producers can sell all of the good they wish. The price at which Qd = Qs is called equilibrium price and the amount of a good bought and sold in market equilibrium is called equilibrium quantity. From the following figure (1) we find that the equilibrium price is TK 30 and the equilibrium quantity is approximately 16,000,000. [pic] Demand and Supply Schedule |Price |Quantity Supplied QS |Quantity Demanded Qd |Excess supply or excess demanded | | | | |(QS-Qd) | |10 |0 |31,000,000 |-31,000,000 | |15 |4,000,000 |27,000,000 |-23,000,000 | |20 |8,000,000 |22,000,000 |-14,000,000 | |25 |11,500,000 |20,000,000 |-8,500,000 | |30 |16,000,000 |16,000,000 |0 | |35 |21,000,000 |11,000,000 |+10,000,000 | |40 |25,000,000 |7,000,000 |+18,000,000 | |45 |30,000,000 |0 |+30,000,000 | The Optimal Level of Activity: In 2011-2012 the net turnover of Keya Cosmetics Ltd was TK 2,405,182,974. We logically assume that 20% of the net turnover that is approximately TK 480,000,000 was that revenue came from the selling of Keya Super Beauty Soap. The net income was TK 264,830,888. The approximate 20% of net income is TK52,000,000 So the assumed net cost is TK 428,000,000 (480,000,000-52,000,000) We also assume that the average price of soap is TK 30. So approximately 16,000,000 pieces soap was sold in 2011-2012. Total benefit (TB) increases with higher levels of activity up to 4crore units of activity (point G). Then total benefit falls beyond this point. Total cost (TC) begins at a value of zero and rises continuously as activity increases. The level of activity that maximizes net benefit (NB) is called the optimum level of activity which we distinguish from other levels of activity with an asterisk A*. In figure (2) net benefit at any particular level of activity is measured by the vertical distance between the total benefit and total cost curves. At 1 crore units of activity, for example, net benefit equals the length of line segment CC . From the figure (2) we see that the optimum level of activity, A*, is 16,000,000 units where NB reaches its maximum value. At 16,000,000 units the vertical distance between TB and TC is maximized and this maximum distance is BB which means TK 52,000,000 (TK480,000,000 - TK428,000,000 = NB ) [pic] Finding Optimal Activity Levels with Marginal Analysis With the increasing of the activity (number of units of soap) the net benefit increases upto the point M. But if the activity is just over 16,000,000 units , the net benefit begins to decrease. At the left side of M point MB>MC, at the M point MB=MC and at the right hand side of M point MB