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Procurement and Supply Management summary

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A summary of Procurement and Supply Management, as part of Transport and Supply Chain Management on the VU.

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  • August 28, 2024
  • 32
  • 2023/2024
  • Summary
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Lecture 1
Procurement and Supply Management activities are driven by 4 complementary
perspectives/factors:
1. Society/Government: determine regulations
2. Markets: determine prices for goods and services
3. Suppliers: determine alternatives available for procurement
4. Internal factors: determine needs and resources available

Social surplus: a measure for welfare (governments want to maximaze)
- Total benefits - total cost
Potential Pareto improvement: A greater increase in benefits than cost or a larger reduction in
cost than in benefits

Consumer surplus: Total benefits – total expenditure
Producer surplus: Total revenues – total cost
Social surplus is
1. Total benefits (B) – Total cost (C)
2. Consumer surplus (CS) + producer surplus (PS)

Total benefits that market attach to the product: sum of maximum willingness to pay from all the
consumers who can buy the product




Total benefits

Total cost: sum of total cost of all consumers who can buy the product




Total cost

,Social surplus: difference between total benefits and total cost




Consumer surplus: total benefits - total expenditure
Producer surplus: total revenues - total cost

Social surplus = also consumer surplus + producer surplus




Loss of social surplus if the price goes up
WATCH OUT: not the red square

,Loss of social welfare if price goes down
WATCH OUT: not an increase of the red square




Marginal willingness to pay defines the (inverse) demand function




If the price is fixed on 300 and the Q is quantity demanded




Change in social surplus if cost changed from €300 to €500

, Change in social surplus if cost changed from €300 to €100




If the airline were a monopolist, which fee would they charge?
mr=mc
mc = 300
mr=
revenue = p*q
(1000-q)*q
1000q - q2
mr (is r’) 1000- 2q

mr=mc -> 1000-2q = 300
q = 350
p = 1000-q
1000-350 = 650

How high is the profit for the monopolist?

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