Industrial Management & Marketing Mn 3052

Question 2

Let's assume that you want to start your own business rather than seeking a job under a master/employer. Explain how do you estimate and forecast demand for your product/service giving practical examples.

Introduction

Starting a business of our own is not something easy thing to do. To be an entrepreneur one must have the courage to withstand gains as well as losses and has to be a good risk taker in life as well. The future of the company depends on the decisions we make today. Fresh from the university lack of experience and market knowledge can lead us to death traps where we won’t be able to recover again to fight back.

Despite of that face, every single organization entering the market has to answer the basic economic issues and they are,

1. What to produce?

2. How much to produce?

3. To whom to produce?

4. When to produce?

Companies do not run for charity unless they are doing social services. They want to make profit. In order to do so they have to minimize their cost and maximize their profit. In the following explanations we have mostly focused only on answering the question ‘How much to produce?’

‘The Demand for a commodity is the quantity of the good, which is purchased over a specific period of time at a certain price.’

This is the effective demand for a good, i.e. the desire to buy the good backed by the financial ability to do so. Therefore we may distinguish between ex ante demand and ex post demand. Ex ante demand is the quantity consumer will wish to demand at a particular price, while ex post demand is the amount they actually succeeded in buying.

The law of demand states that higher the price, the lower will be the quantity demanded, given that other factors remain constant. It is common sense that at a higher price, a good does not give the same value for money as it would at a lower price and individuals would not want to buy as many. This dependence on price...