Firms like McDonald\'s and Wendy\'s sell hamburgers, salads, and other products
ID: 1226621 • Letter: F
Question
Firms like McDonald's and Wendy's sell hamburgers, salads, and other products that are differentiated in nature. While numerous fast-food restaurants exist in most locations, the differentiated nature of the firms' products permits them to charge prices that are in excess of marginal cost.
Given their current menus, explain what level of economic profit these firms can expect to make in the long run?
What strategies could the firms use to increase the possibilities of earning positive economics profits in the long run?
Explanation / Answer
These firms operate in monopolistic competitive market where exist large number of buyers and sellers and each seller sell differentiate good to customers.
THe industry is fast food industry but a variety of fasft food with some degree of differentiaion is being provide by every seller for example McDonald's provide cheap meals and happy meals whereas, Burger knig specializes in burgers and SUbway has differnt features.
Obviously they charge very minimum price like MC Donald's but in long run they earn huge menu. Because of low price and number of products being provided such happy meals, birthday celebration parties menu and theme, combo packs etc they offer every kind of customer be it a kid, a youth having less money or a family as a whole. This creates brand loyalty towards the brand and they often visist and hardly swirches. Thus in long run they cater huge market share and earn huge revenue which outspread fixed cost and variable cost gets minimized. Thats how they earn huge profits in long run.
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