Question

Chapter 8 - Written Assignment Prompt (about a barkery ) Think of a business you may be interested in starting and take the time to address the following questions in detail (please include the question numbers below when you answer each question): 1. What kind of resources would you need to acquire to operate this business? 2. Which costs are implicit costs? 3. Which resources are fixed and which are variable? 4. Explain the difference between fixed and variable costs for this business. 5. Explain how this business could experience diminishing marginal returns in the short run. 6. Would this business experience economies of scale?

Answer 1

Iam interested in taking a franchise restaurant business of a well known brand.

1) various resources are required to start this business such as man power, building, utensils , kitchen appliances , baking appliances , tables and chairs , accounting devices , cc camera , couches , decorative items, finance or capital , vendors , franchise consideration etc.

2) implicit costs are the costs are 1/3 Rd of the fund or capital required is raised from external sources such as banks hence we have to pay a certain pertage of money as interest. It could have been avoided if I had my own funds instead of borrowed amount.

3)Fixed - salary , rent , interest payable .

Variable - purchase of materials that are directly required for the business such as food materials sauses , vegetables , meat and drinks which varies according to the sales.

Advertisement expenses. printing and stationary expenses , telephone expenses and travelling expenses etc.

4) Fixed cost are the cost which are fixed up to 100 % capacity .It remain fixed without any increase or decrease till it reaches it's full capacity. Example - rent.

Variable cost is the cost which varies according to the volume of sales or production capacity.

Example - printing and stationery expenses .

5) In restaurant business, marginal returns could diminish due to several factors such as ;

• Increase in number of cooks or staffs may always hinder productivity.
• kitchen space with crowded staffs will adversely affect the quality and quantity of preparing food and placing orders
• Like that if number or staffs to provide customer service is inadequate it will affect the business turnover.
• Less customer eats due to low quality of food and services can diminish marginal returns.

6)Economies of scale means lowering of production cost per unit when the business grow.

Restaurant industry has to reduce over capacity and reverse property downsizing inorder to acheive economies of scale.