Running head: SINGLE PRODUCT 1

Single Product

Name of Student

Institutional Affiliation
Running head: SINGLE PRODUCT 0

Abstract:

This report is about a hypothetical company which produces a single product.

The market system is recognized as duopoly where two firms have dominant control

over the market. This report has taken the theoretical model of demand and supply

into account. All information and data is gathered from the market and through

surveys from the local (male) campus of ZU.

The findings of this report highlighted the situation of profit maximization, the

optimal price and quantity are $9.50 and 25 pairs of shoes respectively. At the given

equilibrium price, I need to sell 50,000 pairs of single product (“Peshawari Chapel”)

per year in up to break even by exporting them from Pakistan. It is a profitable business

to import a single product from Pakistan, then sold them in the local campus of the

universities in UK to students, staff and faculty male members

The purpose of the report is to find the impact of changes in demand, supply

and prices on production of single product. The report is divided into eight sections

from the description of industry; to definition of the market; calculation of demand and

supply models; explanation about game and its consequences and finally the sum up of

report by demonstrating the expected profit of the year. The first firm is maker

“Peshawari Chapel” and its competitor firm is Owler shoes. The product that is

common among firms is known as “Peshawari Chapel”. The targeted audience is the

male campus of ZU especially students, staff and faculty members of the university.

Blake (2009) expresses, which shoe industry become the leading industry in

Pakistan and generating the revenues $212 million. It’s the only business which took

$0.1 to $1million for the start up. According to CAGR, it is expected that it will grow
SINGLE PRODUCT 1

up to 3.1% from 2018-2026. The shoemaking industry is providing excellent quality of

products not only in Pakistan but in other countries too.

Running head: SINGLE PRODUCT 1

Single Product

1. Introduction

The report is about a hypothetical company that is producing a particular item. A single

product that is manufacturing by the industry “Peshawari Chapel” (male). The market is

anticipated as a duopoly, where the other firm will compete known as Owler shoes. This report

highlights the findings using a theoretical model of demand and supply. All the information

that is collected for model standardization is from the market.

The market that I chose is the industry of Pehsawari Chapel in Pakistan and UK. A

single product that is taken into consideration is known as ““Peshawari Chapel””. Both firms

Owler and “Peshawari Chapel” maker have dominant role in the market in production and

distribution of this single product.

A single product ““Peshawari Chapel”” are sandals that are made up of leather and

they are available in unique designs. It is the customary footwear in Pakistan especially

Pashtuns and Pathans wear it in KPK region. Basically this single product is originated from

Peshawar. The word ‘Chapel’ is the native word that local people used for flip-flop or sandals.

Usually, it is worn by men in daily routine and in the parties with the dress of “Shalwar

Qameez”. It is the best alternative of Slipper or Sandal in Pakistan. It is formal footwear, which

consists of strips joined together in crossing and overlapped form. On the back side a strip like

a buckle to tie the chapel conferring to the foot size and according to the comfort level. It is

made up of leather and its sole is made up of the truck tire and available in different color and

sizes. Moreover, it is decorated with golden and silver thread work which makes it different

and decent in look. It is also famous in other parts of Pakistan as well as around the world.

Even non-Pakistanis are wearing it with jeans. With the expansion of the business, and increase

in its demand, the producers and businessman launch it through commerce website. The
SINGLE PRODUCT 2

“Peshawari Chapel”.pk is providing two different offers for shipping to foreigners and

Pakistani customers:

Pakistan Nationals: Shipping is free for customers in all over the Pakistan. Those

consumers who can`t purchase it by visiting the shop, they can order it through website. Their

service for vauble customer is on door step. The producer has provided the facility of cash on

delivery for all merchandise. Its service, cash on delivery service is facilitating consumers to

make the payment once you`ve purchased the product and receive it. So to avail of this service,

consumer needs to pay no extra charges for bulk quantity. Please note that this service is

available for our customers in whole Pakistan (Pro Pakistani, 2017).

Foreign Nationals: However, the company has launched the service for overseas, the

customer needs to pay a further quantity of $24.99 for 1st product and from second product

shipping value would be $19.99/- as worldwide shipping charges. It tends to make sure that the

standard of your purchased merchandise remains intact throughout the whole shipping method.

All overseas customers needs to send their payments via PayPal that is one of the safest, secure

and free mechanism for online payments. Its SSL coding ensures the protection of payment

and sensitive information of customers remains confidential (Innovation Punjab, 2012)

In 2014, the “Peshawari Chapel” became the world`s trend when Sir Paul Smith had

made a shoe similar to it. It was sold in £299.99. This price was 100% to 300% more than

regular prices. Although provokers discouraged it on Social Media that this is the part of

Pakistani craft and culture and copyrighted to original makers. Even the people in the world

signed a petition to take action by the US government as consequences; Mr. Smith changed the

name on his website and write it as “Motivated from “Peshawari Chapel””. A new style came

in 2015 is known as Captain Chapel, which became famous when gifted to Imran Khan Prime

Minister of Pakistan by a local producer. It was made up of snakeskin and costs Rs50, 000.
SINGLE PRODUCT 3

Now, in Pakistan approximately more than 10,050 workers are associated with this

industry. The ex-president of Charsada Chapel, Shah Hussain (2017) expresses that they made

10,000 chapels every day from single-gear to triple-gear. Single-gear means it is stitched once

time. Double-gear means twice sewn and triple-gear means stitched thrice times.

It is made up of both imported and Pakistani leather, which boosts the leather industry

in the country. The Footwear Training Institute is establish to give training about making of

foot wears to local people, and to promote trend of traditional wear in Pakistan and other

countries (Hindustan Times, 2008).

In this report, the first firm or industry is “Peshawari Chapel” and its competitor is

Owler shoes. The single product that is taken from both firms is “Peshawari Chapel”. This

single product is exported to many Middle East and European countries and etc. I also chose

this product for sale in university campus of UK by exporting it from Pakistan. The targeted

audience is the male campus of ZU especially students, staff and faculty members of the

university.

The proceeding sections are organized as follows; Section (2) describes the industry.

Section (3) outlines and defines the market. Section (4) shows the model of demand. Section

(5) displays the model of supply. Section (6) elucidates the game and its consequences.

Section (7) demonstrates the expected profit for the year. Finally, section (8) sum up the

whole report. The Appendix is proof of all information, which is used from relevant cost and

surveys.

2. Industry:

The business of my company`s activities has ISP Code (4150), called Shoes and Wearing

Activities, that includes the serving and preparation of shoes in the market such as sports

shoes, sandals, party wear shoes and etc. for males.

SINGLE PRODUCT 4

3. Market Definition

3.1 Product Market

The “Peshawari Chapel”* is the signature fashion trend in Pakistan. It served in

colorful designs. This Chapel is made in Pakistan and exported to the UK where people wear

it fondly. I conduct an SSNIP survey by asking different questions to people, including

students, staff and faculty members about an example of “Peshawari Chapel”*: If the price of

Peshawari* Chapel goes up by 10 percent, from where you will buy it? Everyone answered I

would get to buy Owler shoes. Therefore, Owler is an alternative and consequently enters the

product market.

3.2 Geographic Market:

I will open my shop on the main campus (male), which is nearby and easily accessible

for male students, staff and faculty members. The market of “Peshawari Chapel” is not only

limited in Pakistan, but it accesses the Middle East and European market through the use of

internet and technological improvement. Pakistani “Peshawari Chapel” makers,

entrepreneurs, and businessmen use the internet to spread various traditional goods around the

globe(The News, 2011).

Following table demonstrate the definition of market:

Table 1: Definition of the market (Source: www.worldtrend.com)

Product
Firm Description Geographic Market Description2
Market
Accessible to all
“Peshawari
faculty and staff
“Peshawari Chapel”,
“Peshawari members but
Chapel” leather, Male Campus ZU
Chapel” limited access to
Industry embroidery
male students of ZU
work
campus.
Accessible to all
Leather,
Owler Sandals and faculty and staff
plastic, Male Campus ZU
Shoes Shoes members but
Rubber
limited access to
SINGLE PRODUCT 5

shoes and male students of ZU

Sandals campus.

Market Insights:

Pakistan is exporting footwears in more than 60 countries, which is increasing the

growth rate of industry day by day. Within the share of exports of $111 million, the share of

footwear is 0.001%. With the population of more than 210 million and GDP (nominal) per

capita is $1599 in 2018. The wide range of opportunities is available in the footwear industry

to meet the demand of consumers. Approximately, small firms are producing 2550 pairs of

shoes every day, while big firms are manufacturing, 10510 pairs of shoes every day. These

shoes include leather, synthetic and rubber shoes for children, men, and women. The cost of

80-90% of leather shoes in the international market is $11-$12 which is the least price as

compared to other famous brands. The top quality leather makes the footwear unique and

different, additionally, they are reliable. It means the leather and footwear industries are

contributing to toa big market share in exports revenue(Peshawar Frontier Post, 2011).

Chinese govt. is collaborating local shoemakers to compete for the international firms,

by implementing new technology and advanced skills. Majority of shoemaking firms are

present in Lahore, Multan, Karachi, and Faisalabad. The “Peshawari Chapel” has a significant

impact on exports earnings. Even, different designers of the world are copying designs of

“Peshawari Chapel”(Hindustan Times, 2008).

4. Demand Model

In this report, the potential buyers are male students, staff and faculty members of the

university. The following table shows the statistics of them:

Table 2: Statistics of Potential Buyers (Source: ZU administration2018)

Section People Mass Facts

SINGLE PRODUCT 6

All female students only

Students 2500 89.8%
because of location.

Staff 300 5.7% Female and a few males.

Faculty 150 4.5% Female and male

Total 2,950 100.0% ZU female campus

Although, all potential buyers are not responsive to the product. So, with the implementation

of planned marketing and presence of demand for a particular product, I suppose that well-

versed customers, who are eager to pay for the “Peshawari Chapel” are demonstrated in the

following table:

Table 2: Statistics of WTP of Customers (Source: Blake, 2009)

WTP (Willingness to
Section Well-versed and Eager Buyers
Pay and Info)

Students 46.7% 850

Staff 23.8% 120

Faculty 29.5% 30

Total 40.3% 1,000

After calculating the sustainability level, which is equal to 50%, on the basis of the following

tables:

Table 3: Substitution Level of Customers (Source: Microeconomic analysis)

Segment Q1 Q2 Q3

Students 0.00% 100.00% 50.0%

Staff 0.00% 70.00% 25.0%

Faculty 0.00% 80.00% 75.0%

Weighted Average 0.00% 97.58% 49.24%

 SINGLE PRODUCT 7

Substitution-Level 50.00%

An additional question that I asked from the people whom I asked about an alternative decision.

The other question is; what is about the limits of demands, market size test (when p = 0 and

Quantity demand is maximum), unaffordable price (when quantity demand is zero).

The following table demonstrates my calculation;

Table 4: Table of Prices and Market Size (Source: Yuang, 2014)

Segment Excessive Price (GBP) Market Size (units)

Students 7 8

Staff 9 3

Faculty 13 4

Overall Average 10 5

The representative approach model of demand is added here. I suppose the Peshawar Chapel

linear demand model for supply for the duopoly. Following equation is of demand model:

1 𝑔 𝑏𝑔𝑝𝑗
𝑞𝑖 = [𝑎 − 𝑏𝑝𝑖 (1 + ) + ],
2 2 2

𝑤ℎ𝑒𝑟𝑒 𝑖, 𝑗 = 1,2, 𝑖 ≠ 𝑗; 𝑎, 𝑏 > 0; 𝑔 ≥ 0.

Following are some parameters that belong to the demand model:

Table 5: Parameters of Demand Model (Source: Economics and Statistical Analysis(2018)

Constants Value Description

a 6 Size of Market

b 1 Slope of Demand

a/b 7 Excessive Price

g 2.00 Comparison

g-level 50.00% Substitutability level

 SINGLE PRODUCT 8

5. Supply Model

Following the model of the linear total cost is taken into account. To find the total cost, the

following is a model:

𝑇𝐶𝑖 = 𝐹𝐶 + 𝑐𝑞𝑖 ,

𝑤ℎ𝑒𝑟𝑒 𝑖 = 1,2; 𝐹𝐶, 𝑐 > 0.

TC stands for the total cost, FC stands for a fixed cost, c stands for constant and q stands for

quantity. The fixed cost is normalized in the report by the overall size of the market, which is

supposed as follows:

Each male customer buys “Peshawari Chapel” once during 181 working days. Hence,

with customers of 1000, the whole size of the market is 181,000 “Peshawari Chapel” per year

in the case of the UK, in the case when “Peshawari Chapel” are exported from Pakistan.

The Fixed cost may vary but annual quantity doesn’t. Specifically, fixed costs included:

salaries of employees; rent; and bills of utilities. In contrast, the variable cost per “Peshawari

Chapel” included: leather, stitching, embroidery. Therefore, the following table expresses the

parameters of supply.

Table 6: Parameters of Supply Model (Source: Economics and Statistical Analysis(2018)

Constants Value Description

c 0.50 VC constant

FC 181,000.00 Fixed cost

z 180,500.00 Normalization value

FC" 0.50 Fixed cost normalized

SINGLE PRODUCT 9

6. The Game:

I suppose that competition is demonstrated by a price setting game played at once in a

year. I also suppose that Owler shoes have a similar cost to the “Peshawari Chapel” maker.

Hence, the equilibrium price of the game is set non-supportive. The optimal quantity and prices

show the point where profit is maximum.

Optimal price can be defined as the price at which a seller makes the profit and the

buyer is willing to pay. Optimal quantity at which the seller is gaining profit after sale and

buyer`s willingness to pay is high. Profit maximization a point in the business either short or

long run where the output is at peak level with optimal price and quantity.

Finally, the optimum combination of quantity and price for my profitability is as following:

Table 7: The Game (Source: Economics and Statistical Analysis(2018)

Consequences to the firm I (“Peshawari Chapel” Maker)

Optimal Price: Optimal Quantity: Profit:

pi* qi* πi*

$9.50 25 5.24

The matrix of payoff game is mentioned below:

There are two firms or players, the first one is the maker of “Peshawari Chapel” and

other is Owler shoemaker, the product they are producing is Chapel/Sandal. Both are

competitive and targeted audience has a choice of alternatives too. The following matrix

representing the low ratio of the population (including students, faculty and staff members) to

collaborate with Owler shoes, due to cheap, high quality and accessible “Peshawari Chapel”

in the campus. The role of “Peshawari Chapel” maker is dominant her, their choice will affect

the opponent Owler shoes. The strategy for Owler Shoes is vertical and horizontal for the maker

of “Peshawari Chapel”. If Owler shoe chooses don’t collaboration then “Peshawari Chapel”

will choose collaboration set of strategy.

SINGLE PRODUCT 10

Table 8: Matrix of Payoff Game (Source: Matrix Payoff Matrix Analysis(2018)

Owler Shoes

Don't collaborate collaborate

“Peshaw Don't
2.75 , 2.93 3.55 , 1.65
ari collaborate

Chapel”
collaborate 2.34 , 2.35 4.21 , 4.28
Maker

7. Expected Profit for the year

The market value of the industry of “Peshawari Chapel” is approximately US $22.4

billion in 2017. According to CAGR, it is expected that it will grow up to 3.1% from 2018-

2026. The shoemaking industry is providing excellent quality of products not only in Pakistan

but in other countries too. At the given equilibrium price, I need to sell 50,000 “Peshawari

Chapel” per year in up to break even by exporting them from Pakistan (Hindustan Times,

2008).

8. Summary

I am optimistic about this business. I think my price is reasonable. I believe I will sell

more than the break-even quantity because the market price is high. On the other hand, Owler

shoes are making sandals using Synthetic Leather and Fiber. Its demand in the world increases

by 158K in last 6 months of 2018 (The News, 2011)

Figure 1: Demand for the Product (Source: “Peshawari Chapel” Trend (2018)
SINGLE PRODUCT 11

In this report the average price if $1 million taken for the quantity of 1000 pairs of

shoes. At the situation of profit maximization, the optimal price and quantity are $9.50 and 25

pairs of shoes respectively. Its startup took $1 million now it become leading industry of

Pakistan with expected revenues of $212 million. It is a profitable business to import

“Peshawari Chapel” from Pakistan and sold them in the local campus of the universities to

students, staff and faculty male members (Blake, 2009).

The special sponsored rates for Pakistan’s worldwide footwear trade have helped

increase the exports to the extent of 250 percent within the last number of years. Export of

shoes has shown an increase of thirteen percent within the previous year until the October,2018

against the corresponding amount of 2017 year. When the govt. will support the industries of

footwear it can generate revenues up to $2000000. Pakistan’s footwear business manufactures

around a hundred and twenty million combines annually for local consumption and it exports

two million pair each year and therefore the average value charged for every pair stands around

$10-$12. Its share in Pakistan’s total exports is about $200 million. The share of Pakistan’s

footwear exports within the world’s total footwear exports is about 0.18% whereas it's one.6%

for the Republic of India and twenty-ninth for China within the year 2006. For the Asian nation,

it rose from 0.16% to0.23% in 2005 and reduced to 0.18% in 2016. Footwear exports share in

Pakistan’s total exports rose to a quarter in 2015 from 0.7% in 2012 and it accounts for

regarding zero.8% in 2006 of Pakistan’s total exports (Peshawar Frontier Post, 2011).

This sector has great importance in terms of providing and making jobs, earning of

foreign exchange with the assistance of exports and fulfilling the native consumption

necessities. Both in the Asian nation and around the globe, the demand for footwear is

increasing. The Asian nation is one in all the foremost inhabited countries within the World

and in keeping with an estimate with a mean growth of 2.25 %, with rapid population growth

signaling the growing demand for footwear in the Asian nation. it's conjointly calculable that
SINGLE PRODUCT 12

regarding sixty %of the World’s total consumption consists of easy footwear made entirely of

non-leather materials which for the remaining 40% of the shoe is created of animal skin. In the

producing of footwear, most often used material consists of animal skin, manmade materials,

rubber / canvas / artificial and textile on accessories. Totally different kinds of shoes are being

made by the native business e.g. sportsmen, army, disabled persons and safety shoes for the

economic employees, etc. (The News, 2011)

SINGLE PRODUCT 13

References

 Blake, William R. (2009) “Footwear International.” International Management Behavior.

3rd ed.Malden, MA: Blackwell Publishers, Inc., Pp. 173-80.

 "The “Peshawari Chapel”". Hindustan Times. September 24, 2008. Retrieved October

22, 2011.

 The Making of “Peshawari Chapel” – Innovation Punjab. Innovation.gop.pk.

Retrieved August 15, 2012.

 "Peshawar News: “Peshawari Chapel” becoming fade in high society". Frontier Post.

August 30, 2011. Retrieved October 22, 2011.

 "“Peshawari Chapel” with jeans becomes a youth cult". Thenews.com.pk. November 24,

2010. Retrieved October 22, 2011.

Running head: SINGLE PRODUCT 1

Appendix:

Table of Calculations:

Formulas Answers

P= 1000-q Price equation or also called Marginal Revenue

ATC= Q + TQ/Q Average Total Cost

MR= 1000-2(q) Margin Revenue equation

In Duopolistic market, the equilibrium condition is:

Duopolistic= MR=MC

1000-Q=2Q

Q=25…….

MC=TC/Q Marginal cost equation

TC=ATC*Q After taking first derivative the equation becomes

TC= Q^2+1000

By putting Q= 25 in price equation

P=1000-2(25)

P=$9.50

The equilibrium condition is:

Profit=MR=MC,

950/(181000/100) =

Profit= 5.24
SINGLE PRODUCT 2

Table of Findings (Price, Quantity, Profit)

Consequences to the firm I (“Peshawari Chapel” Maker)

Optimal Price: Optimal Quantity: Profit:

pi* qi* πi*

$9.50 25 5.24

Table for Demand Model

a b p g q
6 1 13 2 3.5

Table for Supply/Cost Model

c q FC TC
0.5 1000 181000 181500

Table for Payoff Game Matrix

Owler Shoes
Don't collaborate collaborate
“Peshaw Don't 2.75 , 2.93 3.55 , 1.65
ari collaborate
Chapel” collaborate 2.34 , 2.35 4.21 , 4.28
Maker