# Textile Industry

Pages: 2 (584 words) Published: June 22, 2013
MANAGERIAL ECONOMICS
ASSIGNMENT
ON
USING ELASTICITIES IN MANAGERIAL DECISION MAKING
Pertaining to the TEXTILE INDUSTRY
(Cotton garments)

Submitted by:
WEAVERS:
Gloria D Souza
Mohita.V
Preeti M Prasanna
Suman Sourav Rout

REGAL GARMENTS manufactures ladies garments. Considering a garment of the raglan style the following regression equation has been constructed. Case 1: Gₐ = 40 – 3 Pₓ+ 1.5 I +1.2 S – 1D + 0.3M
Where G = the sales of raglan garment in India in thousands per year. Pₓ = price of each raglan garment
I = personal disposable income in thousands per year S = price of the synthetic raglan garment
D = the cost of processing (desizing, scouring, bleaching, dyeing) per garment M = the cost of marketing put forth by REGAL GARMENTS calculated per garment For the year 2011, Pₓ = Rs.50; I = Rs.60; S = Rs.40; D = Rs.10; M = Rs.2 Substituting the values in the regression equation we have;

G = 40 – 3(50) + 1.5(60) + 1.2(40) – 1(10) + 0.3(2) = 18.6 This indicates that the annual sales of the industry are 18,600 garments/ year. Now, finding the elasticity of demand of raglan with respect to the above mentioned factors, we have: E (Pₓ) = -3 (50/18.6) = - 8.06

E (I) = 1.5 (60/18.6) = 4.84
E(S) = 1.2(40/18.6) = 2.58
E (D) = -1 (10/18.6) = -0.53
E (M) = 0.3(2/18.6) = 0.03
Case 2: With these figures in mind, we can forecast the growth in sales for the year 2012, with the following changes in determinants of demand: Price: increased by 5 %
Personal disposable income: 2% fall
Price of synthetic raglan garment: increased by 3%
Processing cost: increase by 4%
Marketing cost: increase by 10%
Gₐ = G{ 1+E(Pₓ)[ΔPₓ/Pₓ] + E(I)[ΔI/I]+E(S)[ΔS/S]+E(D)[ΔD/D]+E(M)[ΔM/M]} = 18.6{1+ (-8.06*0.05) + (4.84*-0.02) + (2.58*0.03) + (-0.53*0.04) + (0.03*0.1) = 10.40
This indicates that the annual sales of the company would come down to 10400 garments per year if the...