ajaz_204_2009_lecture_17

ajaz_204_2009_lecture_17 - University of Toronto Department...

Info iconThis preview shows pages 1–9. Sign up to view the full content.

View Full Document Right Arrow Icon
University of Toronto Department of Economics ECO 204 2009 2010 Sayed Ajaz Hussain Lecture 17 1 Ajaz Hussain. Department of Economics. University of Toronto (St. George)
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Today ± Pricing and Output under uncertainty ² Ex ante uncertainty ² Ex post uncertainty ² Common mistakes in business ² Uncertainty in fashion goods ± Revenue vs. Profit maximization ± Franchise contracts ² Revenue sharing ² Profit sharing Ajaz Hussain. Department of Economics. University of Toronto (St. George) 2
Background image of page 2
Price & Output Under Certainty Ajaz Hussain. Department of Economics. University of Toronto (St. George) 3 Forecast demand Choose target output q Price follows from demand curve START END Produce target output q Choose optimal inputs to produce target output q Sell target output q Customers buy target output q Distribute target output q
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Price & Output Under Uncertainty Sound decision making must take uncertainty into account Ex Ante How to forecast demand and cost? ECO 220 & ECO 374 See WSJ article on business forecasting Ex Post What if demand is higher or lower than expected? What if cost changes? What if an opportunity arises? Ajaz Hussain. Department of Economics. University of Toronto (St. George) 4
Background image of page 4
Example: PTC Commercial Demand Ajaz Hussain. Department of Economics. University of Toronto (St. George) Demand 138 Commercial Hours Commercial Price $800 (1.3)138 (0.7)138 $1,000 $600 + 30% 30% Ex ante demand derived from managements’ opinion March 2003 P C = $800, Q C = 138 hours P C by $200 30% Q C P C by $200 30% Q C P C = 1,466–4.83 Q C 5
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Example: Expected Demand Another way that PTC’s commercial ex ante demand could’ve been derived Ajaz Hussain. Department of Economics. University of Toronto (St. George) 6 p = 0.5 1 p = 0.5 High Demand Low Demand P C = 2,000–6 Q C P C = 932–3.66 Q C Expected Price = E[P] E[P] = p*High Price + (1 p)*Low Price E[P C ] = 0.5[ ] + 0.5[ ] E[P C ] = Expressed as: P C = 1.466 4.83Q C
Background image of page 6
Ex post Uncertainty Ajaz Hussain. Department of Economics. University of Toronto (St. George) 7 Forecast demand Choose target output q Price follows from demand curve START END Produce target output q Choose optimal inputs to produce target output q Customers buy target output q Sell target output q Distribute target output q
Background image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Ex Post Uncertainty Golden Rule Decide on relevant demand and cost factors What matters are demand and cost conditions going forward The past is the past The Moving Finger writes; and, having writ, Moves on: nor all your Piety nor Wit Shall lure it back to cancel half a Line,
Background image of page 8
Image of page 9
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 31

ajaz_204_2009_lecture_17 - University of Toronto Department...

This preview shows document pages 1 - 9. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online