Question

A well known Restaraunt is not open after 4pm on weekdays. Please explain this behavior using/based on specific economic ideas/behavior

Answer 1

In the above scenario the firm is working on the principle of behavioural theory of the firm. In this theory the firm takes the decision on its own during different situations. It mainly considers how the firms actually behave and how they really take decisions in practice. These decisions can be related to price of the product , level of output , sales strategy etc. the logical arguments has been used to build models regarding the behaviour of big business firms other than those whose actual decision making process has been studied.

According to behavioural approach , unddr conditions of uncertain demand or cost conditions while taking decisions regarding price, output , sales strategy , it is impossible to know whether profits are being maximised or not . According to Cyert and March , in these days of large corporate type of business firms , we can no longer consider them as a single major decision maker , but instead we should look them as complex group or organisation composed of various individuals and groups whose interest may conflict with eaxch other.

In the above case the restuarant might be focusing on maximising the revenue with minimum cost behavioural approach , i.e providing the best value for money deal to its customers in its working time , restuarant might be running on low capital and if they think to open it for full day it might increase their cost which on other hand decreases its revenue and they have to lower down their quality too to complete the demand of its customers . Food sector faces stiff competition not only with their competitors but also with home made food so if restuarant degrade its food and service qualityand consumer saw less value in eating he would move to some other place .

Thus , behavioural model has made important contributions to the theory of the firms .It has provided a great insight in the process of goal formation and fixation of aspiration levels and also allocation of resources within firm. Its contribution also lies in analysingthe stabilising role of organisation slack for activity of the firm through changes in slack payments in periods of boom and depression.