Welcome to Our Presentation

Group Members
Md. Ziaul Haque Rakib Das Abdullah-Al-Mamun Ishrat Jahan 23038 23056 22064 22043

Application of Managerial Economics on British American Tobacco Bangladesh Company Limited

British American Tobacco Bangladesh Company Limited

British American Tobacco UK is the parent company of

BAT Bangladesh. British American Tobacco Bangladesh is one of the biggest multinational in Bangladesh. It was incorporated on 2nd February 1972. Leading tobacco industry in the bangladesh. Market leader in tobacco industry with 56% market share

Brand Portfolio:
Premium Segment: Benson & Hedges b) High Segment: John Player Gold Leaf, Pall Mall and Capstan c) Medium segment Star and Scissors d) Low segment Pilot and Bristol
a)

Aggregated Production & Sales info

Year Actual Sales (in Production (in million sticks) million sticks) 30,040 29,911 26,435 26,568 24,701 26,493 26,064 24,339 Price per stick(Tk)

2012
2011 2010 2009

8
7 6 5

Demand , Supply and Equillibrium point for Benson & Hedges

Assumption:
British American Tobacco only produces Benson & Hedges, therefore, all the sticks belong to Benson & Hedges 2. Relationship between Supply curve & Demand curve is linear.
1.

Supply Curve
Supply= 30,040 @ Tk 8 Supply= 26,435 @ Tk 7 Supply equation will be y=mx+b
Year Price per stick(Tk) Actual Production (in million sticks)
30,040 26,435 26,568 24,701

2012 2011 2010 2009

8 7 6 5

Supply Curve
Here m =
(1 2 ) (1 2 )

= = 3,605 So, y = 3605x + b

30,04026,435 87 3,605 1

Supply Curve
to find b you can plug in either y= 30,040,x=8 or

y=26,435 x=7 So, 30040 =3605(8) + b 30040 =28840 + b b= 1200 Supply equation, ,y=3605x+1200

Supply Curve
9 8 7 26,435, 7 26,568, 6 24,701, 5

30,040, 8

P r i c e

5
4 3 2 1 0 0 5,000 10,000 15,000 20,000

Supply Curve

25,000

30,000

35,000

Quantity

Demand Function:
Demand=29,911 @ Tk 8 Demand= 26,493 @ Tk 7
m=
2991126493 87 3418 1

= = 3418

Year 2012 2011 2010

Price per stick(Tk) 8 7 6

Sales (in million sticks) 29,911 26,493 26,064

2009

24,339

Demand Curve
9 8 7

P r i c e

6 5 4

3
2 1 0 0 5,000 10,000 15,000 20,000 25,000 30,000 35,000

Quantity
Demand Curve

Demand Curve
y=mx+b 29911=3418(8)+b 29911=27344 + b b= 2567 Demand equation, , y= 3418x+2567

Equilibrium Price & Quantity

We know at, at equilibrium point = 3418x+2567 = 3605x+1200 3605x-3418x = 2567-1200 187x = 1367 x = 7.31 , y= 3418(7.31)+2567= 27552.58

P R I C E

Demand Supply

0 0 5,000 10,000 15,000 20,000 25,000 30,000 35,000

Quantity

OPTIMAL DECISION
Considering Unconstrained optimization in which the decision maker can choose the level of activity from an unrestricted set of values.

The objective function to be maximized: NB = TB TC

Level of Activity (A) 250 400 550

Total Cost Total Benefit Net Benefit 0 1100 2000 3200 0 2500 4000 5300 0 1400 2000 2100

Marginal Benefit 10.00 10.00 8.67 4.67

Marginal Benefit 4.40 6.00 8.00 8.67

700
1000

4500
6500

6000
6200

1500
-300

0.67
6.20

6.67
6.50

OPTIMAL DECISION
7000 6000

TC

TB

Total Benefit & Total Cost

5000 4000 3000 2000 Series1 Series2 Series3

1000 0

06 0

250 12

400 18

550 24

700 30

1000

Level of Activity (A)

Total Benefit increases with higher levels of activities up to 1000 units of activity, then total benefit falls beyond this point. Total cost begins at a value of Zero and rises continuously as activity increases.

LEVEL OF OPERATION & OPTIMAL SCENARIO

Net Benefit
2500 2000

Net Benefit

1500

1000 500 0
-500

Net Benefit

01

250 2

400 3

550 4

7005

1000

The level of activity that maximizes net benefit is optimal level of activity.

LEVEL OF OPERATION & OPTIMAL SCENARIO

Marginal Benefit/Cost is the change in total benefit/Cost caused by an incremental change in the level of an activity.

Net Benefit
2500

MB = MC

MB > MC

MB < MC

2000

Net Benefit

1500 1000 Net Benefit

500
0

01
-500

250 2

400 3

550 4

700 5

1000

Level of Activity (A)

Substitution Effect
The change in the consumption of a good that would

result if the consumer remained on the same indifference curve after the price of the good changed.

 Lets assume that,

The price of Benson & Hedges, Px = tk. 16 The price of Marlboro, Py = tk. 4 The income of a consumer, M = tk. 320 So, our budget line function is, 16x + 4y = 320

BAT & Other Products

 If a consumer spends his total income for Benson, he

can buy 20 units of it and if he does it for Marlboro it will be 80 units. Now if the price of Benson decreases to tk. 4 and that of Marlboro remains the same, the consumer can buy 80 units of Benson. Now our budget line function is = 4x + 4y = 320 With the original price the highest combination of both items is 10 units of Benson and 40 units of Marlboro.

Here, as the price of Benson has decreased, with the decreased price, we need to spend, 4x + 4y = 4(10) + 4(40) = 200 tk. Still we have 120 tk.(320-200) left for spending. Our per unit price decrease is 16 4 = 12 tk. So, with the money left we can buy 10 more (120 / 12) Benson.

Elasticity

Elasticity Of demand:
When, Demand Qd= 29911 Qd= 26493 Price is Qp=8,Qp=7

Elasticity =
= =

%Q %P

(2991126493) (87) 11.43% 12.5%

= 0.91 < 1 Inelastic

Again, When Qd= 26493, Qd= 26064 and Qp= 7, Qp = 6 Elastictiy = =

2649326064 76 1.62% 14.29%

= 0.11 < 1 Inelastic

When, Qd= 26064 Qd= 24339 Qp= 6 Qp = 5

Elasticity =

%Q %P

(26064 24339) = (65) = 6.62% 16.67%

= 0.40 < 1 Inelastic

 Elasticity of Supply:

When Qs= 30040, Qs=26435 and Qp=8, Qp=7 Elasticity

3004026435 = 87 12% = 12.5%

= 0.96<1 inelastic

 Again Qs= 26435, Qs=26568 Qp=7, Qp=6

Elasticity =

2643526568 65 0.50% = 16.67%

= 0.030<1 inelastic

 Income Elasticity:

When Demand Qd= 30040 Qd=26435 M=35000, M=30000

= 3605 32500 = 5000 28238

=0.83 < 1 Inelastic

When Qd= 26435 Qd= 26468 M= 30000, M= 28000

33 26452 = 2000 29000

=-0.015 < 1

 Cross Elasticity of Demand:

3418 1

7.5 26279

= 0.97

THANK YOU
Any Questions ?