Running head: COST ANALYSIS OF A BUSINESS 1

Managerial Economics Assignment

Economics of A Stationery shop

Done By: Ayush Sinha, Sahaj Sharma, Kushagra Vatsa, Spiti Ganguly,

Arfa Zain

Narsee Monjee Institute Of Management And Studies

 COST ANALYSIS OF A BUSINESS 2

Abstract

Friends book shop is a stationery shop owned by Mr Irshad. The purpose of our visit was to

study the economics governing the stationery shop. We tried to ascertain the fixed costs,

variable costs, total costs and revenue earned by Mr Irshad. We also calculated the marginal

costs that were involved in this operation. This experiment involved a special emphasis

on the elasticity aspect of the stationery shop which we determined by interviewing two

customers.

Keywords: Economics, Elasticity, Total costs, Fixed costs, Marginal costs,

Elasticity
 COST ANALYSIS OF A BUSINESS 3

TOTAL COST:

Total cost is the total economic cost of production and is made up of

variable costs which keep changing according to the amount of goods produced and fixed
costs of the business.

FIXED COST:

This is the fixed component of the total cost that’s faced by the shop owner.
These costs are independent of the level of goods and services produced by the business.The
fixed cost incurred by the shop owner were Rs 10000 per month which included Rent of Rs
9500 & electricity charges of Rs 500.

VARIABLE COST:

Variable cost is the cost that varies linearly with the sales achieved by
stationery shop owner.

MARGINAL COST:

Marginal cost is the cost incurred to produce one additional unit of

item.

ELASTICITY:

Elasticity refers the degree to which individuals, consumers or producers

change their demand or the amount supplied in response to price or income changes.

 Intro of Store – When was it founded and how it functions

 Ascertaining Total Cost (Variable and Fixed cost of business)
 Ascertaining Revenue
 Marginal Cost Determination
 Profit/Loss Realization
 Demand Scenarios for the store
 Price Elasticity of Demand
 Price Determination for products
COST ANALYSIS OF A BUSINESS 4

MARGINAL COST OF STATIONERY SHOP OWNER: As we can observe and analyse

from Table 1 & chart 1, the marginal cost remains fixed at Rs 8 as the stationery shop owner
doesn’t have much bargaining power when it comes to reduce the price of materials
purchased. He purchases all his materials at the beginning of year for Rs 600000.
