Question

Key objective: discovering zero economic profit in a small-business operating in the perfect competition of market structure.

Setting: As a manager and an entrepreneur, you will face a new challenge – business venture structured on the theory of the firm. You are opening a restaurant in your selected town in the State of NY (please name it up front in your assignment). As to simplify the scope of your consideration, we narrow down the problem with several assumptions. You will be serving just a meal in the evening. You also consider a stable level of sales at the full capacity reached; just ignore the slow period of market entry. Make your assessment only per one-month period. Make sure that the targeted level of operations is feasible.

Instruction: You need to apply and discuss relevant economic concepts and tools with supporting data to solve this real-life imitating simulation. Please include also a one-page executive summary for the business plan with assumptions and the goal set, based on the market conditions examined by you. Please make sure that all parts fit in well and make a comprehensive picture with the compromise on the final concept of the business model adopted.

Outline: Please analyze, based on the demand and supply model, the following issues:

•      number of meals sold and prices charged,

•      price elasticity of demand and how to address it in your business

•      total revenue

•      possible challenges

•      fixed costs and variable costs and marginal cost

•      cost of inputs

•      total cost and unit cost (average total cost)

•      diminishing marginal product

•      economies and diseconomies of scale

•      total profit and profit per unit.

Answer 1

Before solving this assignment we must understand the concept of a perfecct competition market:-

In a perfect competition(PC) market all the sellers are selling same products. Hence the market is considered to be price takers which means that they cannot influence the market price.

Lee's Kitchen:-

There are certain assumption that need to be considered before making the profit chat in a PC

• A large number of buyers and sellers.
• Profit maximization.
• Firms and consumers have perfect knowledge of the market.
• The products are same.
• There are free entry and exit of the firms.

Issues tobe considered:-

• Number of meals sold and prices charged:- In lee's kitchen in a month only 1 meal is being served. Let us suppose it to be dinner. The prices that will be charged would be similar to the prices of other restaurants. They cannot be more because to survive in a PC the prices have to be the same also they cannot be less as already the seller has less profit because of competiton.
• Price elasticity of demand and how to address it in your business:- In PC market all the goods are the perfect substitute of each other. Hence for lee's kitchen, the demand curve is perfectly elastic. For example, if lee's kitchen tries to rise it prices there would be no demand as it is a price firm.
• Total revenue:- In a PC firm generally seeks to produce the quality of output that maximizes profit. Hence in lee's kitchen, the total revenue would be in correspondence to the total number of dinner saved.
• Possible challenges:- Due to the social media influence the number of challenges has increased. For example, online marketing of lee's kitchen is a very important factor to sustain in the market.
• Fixed costs and variable costs and marginal cost:- Total cost is the sum of the fixed cost and variable costs. Average fixed cost(AFC) refers to fixed costs divided by the total quantity of output produced.
• Cost of inputs:- The demand and supply of inputs is constant for a short spam such as a month. Hence the cost of inputs does not have and influence.

Executive Summary:-

In lee's kitchen, there are many factors which would be responsible for its success or failure.

The business model that will be best suited for this restaurant would be maximizing sales for higher profit. Also as only 1 meal will be served the maximum number of time that a person can spend at the restaurant should be fixed to result in more leestoners. The online marketing of the restaurant should be terrific and should show case it as the ideal restaurant serving various cuisines which would be attractinng the customer. As we are considering the sales for a month only we will ignore the total number of new entries in the market.

The most highlighting part of the restaurant should be new schemes and decor that attract the customers. As in PC, the prices are the same for all the restaurants apart from the price the quality hygiene, decor and services would be the demand factor.