Business Proposal - Essay Example

Business Proposal Product The product that I have decided to introduce from a current business is Remote Controlled Switch Boards for lights and fans. People will be able to easily swap their current switch boards with remote controlled switch boards in order to avoid the complication of reaching at the switch board to turn on or off the lights and fans. Elasticity of Demand Price elasticity of a demand refers to the degree to which demand of a product changes by change in price. The demand for this product will be very elastic which means that decrease in price will certainly increase the demand for Remote Controlled Switch Boards.

(Jain and Ohri 2007) 1. How will you increase revenue?  It is decided that after the successful launch of this product, the production will be done on a large scale in order to increase the revenue through turnover and not through the selling price. The selling price will affordable enough to attract the customers and to increase the demand of the product for the customer. (Mankiw 1988) 2. How could you use the concepts of marginal cost and marginal revenue to maximize profit? What information do you need to determine this?

Without this information, How would you make a decision?  Profit Maximization Marginal revenue is that additional revenue that is generated by selling one additional unit where marginal cost is the cost that is incurred to produce one additional unit. The costs and revenue of the business are need to identified first in order to maximize the profit. When marginal cost is equals to marginal revenue, at this point there is maximum profit. When MC > MR, it indicates that that additional cost incurred to produce additional unit is higher than additional revenue generated from that unit, in this case the firm should reduce its production.

Whereas, when MR > MC it means that revenues are increasing rapidly than the cost and in this case firm should produce more units. Therefore, the firm generates maximum profit when MC=MR. Variable and Fixed Cost Units Total Revenue Marginal Revenue Fixed Cost Variable Cost Total Cost Avg. Total Cost (Q) (TR) MR=ΔTR/ΔQ (FC) (VC) TC=FC+VC ATC=TC/Q 5 20 4 200 50 250 50 10 40 4 200 100 300 30 15 60 4 200 150 350 23 20 80 4 200 200 400 20 25 100 4 200 250 450 18 30 120 4 200 300 500 17 35 140 4 200 350 550 16 40 160 4 200 400 600 15 45 180 4 200 450 650 14 50 200 4 200 500 700 14 Source: Boyes and Melyn (2010), p. 471 3. How will you determine the profit-maximizing quantity?

  Determining Output In order to determine the quantity at which the profit will be optimum, we have developed an exhibit illustrated below. It represents the cost and revenue information for Remote Controlled Switch boards. Quantity: In the table, the first column signifies the quantity of output that will be produced ranging from 0 to 10 units. It can be observed that if we produce 7 units we will generate the maximum amount of profit. Total Revenue: The next column represents the total revenue according to which the maximum number of units that will be produced will generate maximum revenue excluding cost.

Marginal Revenue: Marginal revenue is present in third column that determines due to change in quantity what will be the change in total revenue. At each production level, marginal revenue is $4. Total Cost: Total cost is given in the fourth column. The total cost incurred in the production is ranging from $3 to $46 for 10 units of remote controlled switch boards. Marginal Cost: Marginal cost is the change in total cost that occurs by change in quantity. Profit: The last column identifies the amount of profit that will be generated by each mix.

It can be seen that by producing the quantity of 7 units we have the maximum profit. The production of 7 units of switch boards resulted in $21 of total cost and $28 of total revenue with a difference of $7. No other combination is generating profit as much as this one. Producing one additional unit of switch board is reducing profit by $1. Therefore, the preferred combination is by producing 7 units of remote controlled switch boards. (Mankiw, 1988) Source: Mankiw, 1988, p. 259 4.

What is your suggested mix of pricing and nonpricing strategies? Explain your answer.  Pricing Strategies Absorption pricing The form of pricing that ensures that all the costs are covered in the price of the product this type of pricing strategy is called as absorption pricing. This means that variable costs of the product are recouped as well as the fixed costs. Non-pricing Strategies Non-pricing strategies are not required at this stage of production where we are launching an entirely new product in a new market.

Non-pricing strategies are used to differentiate a product from its competitors. We don’t have any specific competitor of this product at this point of time. But after our product gains popularity and acceptance in customers, we have decided to differentiate it by advertising and marketing. Its features and attributes will keep on amending as per the requirements of the customers. 5. Can you create or increase barriers to entry? If so, how?  Barriers to Entry Patents As we are the first one to introduce this product in the market, we have decided to grant legal protection by patenting it so that no other company can produce and market this product.

Trademarks In order to protect this product firm has planned to get its Design, Logo, Slogan and Brand Name registered so that no other firm can copy it. The technology that will be used will give us an advantage as only we have the sole authority to use this technology. Skilled Labor Labor that we have hired is working on high wages for us only therefore we have an advantage of having high skilled labor as well. Labor that we have hired is contracted to work for our company only. Therefore, it is restricted for them to work and disclose the working procedures to other firms.

(McConnell and Flynn, 2009) 6. How will you increase product differentiation?  Despite of not having competitors of this product in the market, we still have developed Product differentiation strategies in order to make this product more competent. Product differentiation strategies are based upon the following attributes: Product Features The product itself and its features are innovative and new in the market of electronics therefore one of the ways we are differentiating our product is the type and features of this product.

Distribution Channels Location of distribution channels is kept in the proximity of customers. Installation and after-sales services can also be provided through these distribution centers. Product Sophistication The way this product will penetrate into the life styles of customers has also been kept in mind while designing this product. It will enhance the way they live by making their life easier and comfortable. This product will take less time to operate due to its special technological feature and will provide greatest satisfaction to the customers.

Service and Support The service and support will be provided instantly on the first call of customers. We work hard to provide greatest services to our customers so that they don’t get frustrated after buying our product. Product Mix After the successful acceptance of this product in consumers, we have decided to launch few similar products in others areas to enhance the reputation of this product as well and to expanding this area. (Boyes and Melvin, 2010) 7. Are there other ways to minimize costs for the product?

  Cost of Inventory We have planned to purchase inventory only for that units which are required to be sold in immediate future. We have decided not to purchase extra inventory and pile them up. This will increase an additional cost of warehouse and inventory management. In order to reduce this cost we have taken this decision to purchase inventory of those units only which are to be sold in near future. Advertising Cost A meeting has to be taken place in which we can come up with most suitable advertising criteria.

Many firms unnecessarily spend money on advertising. We have limited the budget of advertising by offering most sensible price to our advertising agency. Other Costs There will be strict follow ups on overdue accounts as well. Businesses often lose a large chunk of money in receivables therefore we have planned to collect all the receivables in maximum of 30 days. We will also offer a discount to those customers who pay us before the stipulated time period. (Boyes and Melvin, 2010) References Boyes, William and Melvin, Michael. (2010). Economics. (8th ed.).

United States : Cengage Learning Inc. Jain, TR and Ohri, VK. (2007). Introductory Microeconomics and Macroeconomics (4th ed.). New Delhi: V.K Publications. Mankiw,  N. Gregory. (1988). Microeconomics. United States of America: Dryden Press. McConnell, C. R., Brue, S. L., & Flynn, S. M. (2009). Economics: Principles, problems, and policies (18th ed.). Boston, MA: McGraw-Hill Irwin.