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PART 2 REVISED Income Elasticity for Luxury Products A good with an income elasticity greater than 1, where the

e expenditure on the good increases more than proportionately with changes in income. REPORT 3 PART 1 Supply factors of your chosen product. 1. Define the concept of fixed cost and variable cost and give the relevant fixed and variable costs of your chosen product. Fixed cost, cost that do not vary with the level of output, which remains constant regardless of the amount of output produced. Below are some of the fixed costs of Panasonic WIDE Series product: a. Rent - PEWSPH Sales Office is located at Makati Sky Plaza Building, Ayala Avenue Makati City. b. Payroll Employees monthly salary is fixed, though most of the employees are Sales Executives we do not have commissions because basically we are not allowed to sell our products to customers. c. Travel for domestic and overseas business trips We have a lot of activities where in we need to travel to different provinces to check the market situation of wiring devices and of course to check the needs of our customers like Wholesalers, Dealers and Retailers. We also visit our business partners abroad to discuss our activities, sales achievement, sales forecast and plans for the upcoming months. d. Membership PEWSPH is a member of Philippine Product Safety and Quality Foundation, Inc. a non-stock/non-profit foundation that provides Philippine Industries with the highest quality resource of quality programs and projects and assist in making available resource that DTI/BPS need to ensure that only safe and reliable products will be made available in the Philippine market. e. Subscription PEWSPH has an account with BCI Asia, a research engine where we could find latest information of project constructions in the Philippines. f. Advertising (Newspaper and Magazine Ad) PEWSPH are active is doing advertisement. We place ads in Magazine such

as in Condo living, My Home, and Newspaper Panay news, Iloilo News today, through this activity we could reach our target markets. g. POP Materials (Brochures, Leaflet, Boards and Demo Unit) h. Factory Audit i. Criminal / Administrative Cases and Activities Variable cost, is the total cost of using the variable input, which increases as more output is produced. Below are some of the variable cost of Panasonic WIDE Series Product: a. b. c. d. e. Annual Rebate Monthly and Quarterly Bonus Sales Promotion Promotional activity Travel abroad with customers (Professional and Dealer Trip) -

2. Define the concept of short run and explain how long is the short run for your chosen product. Short-run production function, involves the use of at least one fixed cost input. At any given point in time, managers operate in the short run because there is always at least one fixed input in the production process. Panasonic WIDE Series are manufactured in Panasonic Electric Works (Ayuthaya) Co., Ltd. located in Ayuthaya, Thailand. PEWAY will need the following to manufacture WIDE Series Receptacle. Raw materials such as Metal (Silver alloy) and Plastic (Urea resin and PBT resin). Labor Machinery A factory

This year we notice that the demands for Grounding Duplex Receptacles are increasing because the price of Duplex is only 30% higher than Single Grounding Receptacle. In order to respond with the market demands, we should be able to order raw materials with little delay, extra labor like increase our labor supply by running an extra shift and getting existing workers to work overtime, Machinery or production line may not be a variable input because our machine has a limitation or what we call production full capacity, it means we already meet the maximum number of production which is always above expected demand and lastly a factory, adding a factory in a short period of time is not possible. Additional Raw Materials Variable Input Overtime Labor Variable Input Machinery or Production line Fixed Input Factory Fixed Input

In order to meet the added demand within the target schedule (2 months before the delivery schedule), we can see that in the short-run production function we can increase production by adding more raw materials, more labor and maximizing our production line, but we cannot add another factory. 3. Define the economies of scale and give at least 2 conditions of economies of scale that apply to your chosen product.

Economies of scale means achieving lower cost of production by adopting a larger scale of production, represented by the downward sloping portion of a long-run average cost curve. 4. Define diseconomies of scale and give at least 2 conditions of diseconomies of scale that apply to your chosen product. Diseconomies of scale means incurring higher unit costs of production by adopting a larger scale of production, represented by the upward sloping portion of a long-run average cost curve. 5. Define the concept of long run and explain how long is the long run for your chosen product. Long-run production function, a production function showing the relationship between a flow of inputs and the resulting flow of output, where all inputs are variable. In line with the increasing demand of Grounding Duplex Receptacle, we are studying the sales trend in order to measure possibility of investing in the future. At first only existing firms will be likely to capitalize on the increased demand as they will be the only ones who will have access to the four inputs needed to make the sticks. However we know that in the long run the factor input is variable as well. This means that existing firms can change the size and number of factories they own and new firms can build or buy factories to produce hockey sticks. In the long run we will see new firms enter the hockey stick market, while we will not in the short run because firms will not be able to acquire all of the inputs they need.