Microeconomics Assignment WMP 15 Group

Anjanay Gaurav Madhukar Pranjal Samarth Tajeshwar

Tripathi Keswani Pandey Kwatra Srivastava SIngh
WMP15008 WMP15018 WMP15028 WMP15038 WMP15048 WMP15058

Assignment on Northern Turkey Case

Answer 1

1. Northern turkey has quarterly data available for 4 quarters spread across 4 years from year
1995 to 1998. From data, it is evident that for every 4th quarter, sales are more than
respective 3 quarters for any year. This is primarily due to a dominant seasonal effect
(Thanksgiving & Christmas). It is also noticed that the first 3 quarters have an increasing
sales trend across the years.

2. Time Series Analysis method is used as it takes into account and includes Seasonality,
Irregularity and Trends.

3. The method used for forecasting for time series analysis using moving average method,
M4 method was used as each year has 4 quarters and cycle is repeating itself every 4
years. Centred Moving average(CMA) was then use as a cycle of 4 is an even number.

4. Seasonality was calculated from CMA and Trend was calculated using linear regression
method from the available data.

The following were the findings

Time Series Data Turkey Sales

18000
16000
14000
12000
10000
Sales

8000 Series1

6000 CMA

4000 Forecast

2000
0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
1995 1996 1997 1998 1999 2000
Year
 Microeconomics Assignment WMP 15 Group

Anjanay Gaurav Madhukar Pranjal Samarth Tajeshwar

Tripathi Keswani Pandey Kwatra Srivastava SIngh
WMP15008 WMP15018 WMP15028 WMP15038 WMP15048 WMP15058

t Year Quarter Sales Moving Average (M4) CMA (CMA4) St, It (Seasonality, Irreuglarity) St Deseonalize Data Trend Tt Forecast
1 1995 Q1 10000 0.918191 10890.98 10998.63 10098.839
2 Q2 10500 0.920863 11402.35 11127.87 10247.24
3 Q3 10500 11250 11312.5 0.928177 0.934454 11236.50 11257.11 10519.254
4 Q4 14000 11375 11375 1.230769 1.221314 11463.06 11386.35 13906.311
5 1996 Q1 10500 11375 11437.5 0.918033 0.918191 11435.53 11515.59 10573.51
6 Q2 10500 11500 11562.5 0.908108 0.920863 11402.35 11644.83 10723.293
7 Q3 11000 11625 11687.5 0.941176 0.934454 11771.57 11774.07 11002.334
8 Q4 14500 11750 11875 1.221053 1.221314 11872.46 11903.31 14537.686
9 1997 Q1 11000 12000 12062.5 0.911917 0.918191 11980.08 12032.55 11048.182
10 Q2 11500 12125 12187.5 0.943590 0.920863 12488.29 12161.79 11199.346
11 Q3 11500 12250 12312.5 0.934010 0.934454 12306.65 12291.04 11485.413
12 Q4 15000 12375 12375 1.212121 1.221314 12281.85 12420.28 15169.062
13 1998 Q1 11500 12375 12437.5 0.924623 0.918191 12524.63 12549.52 11522.854
14 Q2 11500 12500 12625 0.910891 0.920863 12488.29 12678.76 11675.4
15 Q3 12000 12750 0.934454 12841.72 12808 11968.493
16 Q4 16000 1.221314 13100.64 12937.24 15800.438
17 1999 Q1 0.918191 13066.48 11997.526
18 Q2 0.920863 13195.72 12151.453
19 Q3 0.934454 13324.96 12451.572
20 Q4 1.221314 13454.21 16431.814
21 2000 Q1 0.918191 13583.45 12472.198
22 Q2 0.920863 13712.69 12627.506
23 Q3 0.934454 13841.93 12934.652
24 Q4 1.221314 13971.17 17063.19

Quarter Seasonality St
Q1 0.918191
Q2 0.92086298
Q3 0.934454473
Q4 1.221314358

(Q4 Variation due to Thanksgiving and Christmas can be scene in this in seasonality
variations)

Trend line was calculated using linear regression and using existing data points and actual
values

Coefficients
Intercept 10869.38
t 129.241
 Microeconomics Assignment WMP 15 Group

Anjanay Gaurav Madhukar Pranjal Samarth Tajeshwar

Tripathi Keswani Pandey Kwatra Srivastava SIngh
WMP15008 WMP15018 WMP15028 WMP15038 WMP15048 WMP15058

Final Forecast for 1999, 2000

Year Quarter Sales

1999 Q1 11997.53
Q2 12151.45
Q3 12451.57
Q4 16431.81
2000 Q1 12472.2
Q2 12627.51
Q3 12934.65
Q4 17063.19

Total Sales 1999 53032.36

Total Sales 2000 55097.55

5. Considering above model, firm will sell 53,032,360 turkeys in year 1999 and
55,097,550 turkeys in year 2000. The firm will sell 16,431,810 turkeys in 4th quarter of
year 1999 and 17,063,190 turkeys in 4th quarter of year 2000.

6. Possible sources of error

a. Manual error
b. Minimal data was available, forecast may not be valid for a larger range
c. Forecast was done for 1999,2000 together. Actual value of 1999 could be used
to forecast for 2000
d. Factors other such as external economic factors, substitutes, compliments,
govt regulations etc were not considered
e. Model was not validated with external data sets or historical data to check the
error.

Answer 2

Based on time series analysis the sales forecast for 2001 are as follows
2001 Q1 12946.87
Q2 13103.56
Q3 13417.73
Q4 17694.57
 Microeconomics Assignment WMP 15 Group

Anjanay Gaurav Madhukar Pranjal Samarth Tajeshwar

Tripathi Keswani Pandey Kwatra Srivastava SIngh
WMP15008 WMP15018 WMP15028 WMP15038 WMP15048 WMP15058

The Q4 sales are 17,694,570 sales and hence management should proceed with the
installation with the new machine.
However, management should keep the following points in mind.
1. Management should check the actual data of 1999 and Mid 2000 to forecast sales for
2001 and relook at the decision
2. As the forecast for sales is marginally over 1,750,000, management should consider
the cost for this addition with respect to ideal time for the machine and take the
decision accordingly.
3. Firm should also monitor the forecasted values with actual values and check the error
and if the error is significant, forecast model can be changed to arrive at new values

Answer 3
The Per Capita Demand function of turkey is given the equation below,
Q= 7.00-10.0PT+2.0PC+1.0PB+0.50PP+0.0003I--------------------------------- ①

Prices (Per KGs) are as follows

Turkey Rs 50
Chicken Rs 50
Beef Rs 150
Pork Rs 150
If we differentiate the equation 1 with respect to PT
 dQ/dPT= -10

 P/Q*dQ/dPT = -10*P/Q

At PT = Rs 50/Kgs
and Q = 1(Solving Equation①)
Therefore, Elasticity = ɛ = P/Q*dQ/dPT = -500
Formula for Price markup,
Price = Marginal Cost/ (1+1/ ɛ)
Putting PT = Rs. 50/Kgs and ɛ = -500,
 Marginal cost = Rs 50 ; Mark-up = 1.0002
 Microeconomics Assignment WMP 15 Group

Anjanay Gaurav Madhukar Pranjal Samarth Tajeshwar

Tripathi Keswani Pandey Kwatra Srivastava SIngh
WMP15008 WMP15018 WMP15028 WMP15038 WMP15048 WMP15058

As mark up price as 1 and elasticity is -500 which is high, it means that turkey has no
monopoly over other meat products and price increase may lead to a change in quantity
demanded and due to the elastic nature turkey works like a perfect competition
In perfectly competitive market, P=AR=MR-------------------------------------------------- ②
So Marginal Revenue=Price =Rs. 50/Kgs
So we get Marginal Revenue=Price =$50/Kgs=Marginal Cost
 Marginal Revenue =Marginal Cost .

this is the profit maximization condition.

So we can conclude that the current price of Rs. 50/Kg is the Profit Maximization price.

Answer 4
The Per Capita Demand function of turkey is given the equation below,
Q= 7.00-10.0PT+2.0PC+1.0PB+0.50PP+0.0003I
Where I is the per capita income
The management has very little information with respect to general economic conditions.
Only factor influencing the per capita income.
However, the demand has a direct correlation with per capita income, any increase in the per
capita income (General economic condition) will increase the quantity demanded and vice
versa.

However, there are multiple conditions can impact the demand in turkey which are not
considered in the equation such as:
a. Price of poultry feed stock, the price change my impact the quantity produced and
quantity demanded
b. Govt regulations may also have a severe impact on the quantity such as a price
ceiling, price floor or govt ban on turkey.
c. Social changes like the spread of diseases that our poultry originated may change the
demand of turkey

Answer 5
 Microeconomics Assignment WMP 15 Group

Anjanay Gaurav Madhukar Pranjal Samarth Tajeshwar

Tripathi Keswani Pandey Kwatra Srivastava SIngh
WMP15008 WMP15018 WMP15028 WMP15038 WMP15048 WMP15058