introduction .

                                        Introduction

 Mcdonalds is a world renowned fast food industry. It was established by Ray Kroc ,on April 15 1955.The restaurant was first set up in Des Plaines,Illinois.The industry is spread worldwide.This food industry produces goods like : burgers ,fries ,milkshake,desert and chicken nuggets it is a form of normal goods for people in the city but for those in the outskirts it is a form of luxurious goods.It has a monopolistic behaviour.

                                     DEMAND AND SUPPLY:

The law of the demand states that there is an inverse relationship between quantity demanded of any good and the price charged. Obviously, based on the demand curve and data obtained, consumers demand the product at low price; the lower the price, the higher the quantity demanded. Ceteris Paribus explains the situation when the quantity of demanded changed by the price of the product itself. (McConnell, Brue and Flynn, 2012).

Simultaneously, the factors other than the price of the product itself, will affect the quantity demand. Quantity demanded is moving along the curve when the quantity demanded is increased by the price of the product itself. The demand curve will shift along to the right while the quantity demand increased by the other factors. Price Theory shows the ability and willingness of consumer to purchase the product at the current market price. Satisfaction or utility are gained on the consumption goods but consumers would not obtain all of the satisfaction due to limitation of consumers' salaries. (McConnell, Brue and Flynn, 2012).

 

The graph below shows the quantity of demand decreases to 5 units when the price of product itself is RM 50 while quantity of demand increases to 25 units when the price of product itself is RM 10.

                             

factors of demand

DEMAND:   Demand of a good or service always has many factors affecting it. The factors can be income, presence of substitute and complementary goods and even due to the customer choice.

The income level of consumers will affect the demand for a product. When the level of income increases the demand also  increases.Other than that, when a good or service is replaceable with its substitutes, the price increase in one product, ceteris paribus, will cause the increase the demand for the other. For example, many consumers would prefer McDonald over Carl’s Junior due to the price for Carl’s Junior is very high. Therefore, the demand for McDonald increases. In addition, when a good or service is complement to the other, when the price on one product falls, the demand for the complement product increases. For example, if the price of McValue meal of Filet-O-Fish decreases, the demand of the complement product which is fries and coke will increase as well. McValue meal comes with burger, fries and coke. Therefore, the demand of the complement product increases. When the level of income decreases, the demand will also decrease. In example, when a boy receives RM6 from his parents as allowance, he buys 1 Filet-O-Fish burger which costs Rm6 but when his allowance is RM 12, he can buy two Filet-O-Fish burgers which cost Rm12. Thus, the demand for Filet-O-Fish burger increases.

SUPPLY:the theory of supply states that other things remain the same ,the higher the price of goodsthe greater is the quantity supplied and lower the price of the good the smaller is the quantity.

In the mainlands of China the Mcdonalds (corp) increased the price of every meal from 0.5 yuan to 1 yuan.this was not an affect that occured in other  countries.The reason  for this increase in the price is mainly due to food inflation.Mcdonalds already has 1000 outlet in China but want to still increase the restaurant numbers to 150-175 more .The rise in  price of the meals have let to increase in the production of goods.Increase in the production of goods is caused as their is an increase in the price of raw materials ,this has lead to increase in the supply of goods.

economies of scale

                                     ECONOMIES OF SCALE:

When larger groups of goods and service can be produced but with less cost input then that is called economies of scale.Eg:when a company reaches to a high level and all the productions of the company increases,then the company will have a better chance of decreasing their cost.

This method of scale is used by companies mainly for getting or creating cost advantage. Mcdonalds which has about14,098 dwarf stations is more famous then Wendys  that has about 5.876 dwarf site locations.this may be due to advertising expenses put by Mcdonalds are way higher than the expenses made by wendys.Secondly, due to the high rate of advertising and great numbers of locations Mcdonalds gets more consumers,Thirdly  marketing expenditure as well as the14,098 locations make it seem that Mcdonald is a big and ever increasing profit making organisation which makes it have less numbers of competitors.a firms average cost may fall due to more reasons,like due to bulk buying a fast food company like Mcdonalds that is spread all over the producers need to get the raw materials in bulk,hence the suppliers are striked with deals,since the larger the  company the more bargaining power is possible this will lead to reduction in the cost per unit of the goods bought.Mcdonalds is a name that all banks and insurance companies trust this is such a brnd tht has a really high rate of brand loyalty so if the organisation has capital flow barriers then due to the brand loyalty for this company the financial barriers can be solved easily as the banks and insurance companies will help out.Small organisations are not able to make use of all the technologies in their organisation but for a large industry like Mcdonalds all their technologies are made fully utilised and also the labour count is increased since more labourers are needed to work  the machines.

Elasticity

                                     ELASTICITY

PRICE ELASTICITY OF DEMAND:price elasticity of demand is the way of seeing how sensitive is the change of quantity to the price. In other word if a price of a good goes up what will be the amount of that good consumed. people are very sensitive to Price elasticity of demand (PED).Eg : if a customer who buys bread of G BRAND every week suddenly finds that the price of the bread has gone up ,then from the very week she will look for other company bread.an example of elastic demand can also be mcdonalds in fast food market if the price of mcdonalds goes up to a high extend then the consumers are surely going to stop having mcdonlds burgers and may turn to other substitute food marts like KFC,WENDYS ,etc. this rise in price is going to cause a fall in the price of mcdonalds sale.their may be other factors that also affect the price elasticity of demand .the main other 3 factors may be closeness of the substitute goods,the income every consumer spends and the time elapsed or decision time.

CROSS ELASTICITY OF DEMAND:it is an economic concept which measures how responsive the quantity demand of  one good when their is a change in price of some other goods.their are 3 main types of goods:(a)positive good,(b)negative goods and (c) nuetral goods.An example of positive good could be like this, if the price of substitute good( in this case we shall take KFC )  rises then the demand for Mcdonalds will also rise.negative goods act as complements which means that if the price of complementary goods is high lie if the fries and the coca-cola price increases and since these 2 are complementary for burger then the meal value will automatically rise causing the demand of mcdonalds burger to decrease.wheras the goods that are nuetral will have no relationship whatsoever with the goods.

INCOME OR YIELD ELASTICITY OF DEMAND:Income in easy words means the value a person receives for their work. Basically, this elasticity of demand measures how the quantity demanded of the goods responds to the change in income while other factors remain the same.Fast food industry if goes through a survey then we will see that it is mostly common amongst the younger generation , consumers are usually those who do not have time to cook healthy meals (students ,workers who have just started their jobs and to some extend during family outing).this elasticity process can have two different affects. One way may be that if the income of consumers rise then the demand for Mcdonalds will also rise since they can afford greater amount.Eg: if a student who was receiving 10 RM from her parents for her lunch suddenly starts to receive about 30 RM  then she is sure to take her friends to eat what they usually have . She then takes them to Mcdonalds for lunch this will obviously cause an increase in the income of Mcdonalds and  also in the demand.But the other outcome may be that due to the rise in the income consumers wil no longer eat in Mcdonalds but will search for luxurious places to eat, it may also be because people are getting very health oriented and may want to start healthy lifestyle so this will cause a fall in the demand due to the rise in the income.The price elasticity of supply is used to see how sensitive the supply of a good is to a price change. The higher the price elasticity, the more sensitive producers and sellers are to price changes. A very high price elasticity suggests that when the price of a good goes up, sellers will supply a great deal less of the good and when the price of that good goes down, sellers will supply a great deal more. A very low price elasticity implies just the opposite, that changes in price have little influence on supply.

PRICE ELASTICITY OF SUPPLY:

The price elasticity of supply is used to see how sensitive the supply of a good is to a price change. The higher the price elasticity, the more sensitive producers and sellers are to price changes. A very high price elasticity suggests that when the price of a good goes up, sellers will supply a great deal less of the good and when the price of that good goes down, sellers will supply a great deal more. A very low price elasticity implies just the opposite, that changes in price have little influence on supply.Price elasticity is always said to be greater in the long run  since the suppliers will get more time to accumulate resources and will be encouraged to expand. If the amount of cost of production is less then the motivation level will reach to a higher level to produce more .Eg: as Mcdonalds is a really big franchise and is always adding new outlets so for thenm the production cost is also low this helps the suppliers alot in the long run and the suppliers are motivated to supply to Mcdonalds.time frame is also a very important factor in the supply , since the suppliers take more time to evaluate and search for resources then to prevent this from happening the suppliers should b given replacement goods so thet they can get it at a faster time span .Eg if mcdonalds is selling beef burger but since beef gets out of stock then they can ask the suppliers to get more of fish for their fish -o filet burgers.

Conclusion

                                     CONCLUSION:

This economics assignment  was assigned to us by our lecturer and tutor Ms Soo Inn .the assignment basically was given to us to check our analysing ,strategising skills and to also see if we have learned the concept of economics .We were told to find a firm /franchising organisation .the assignment required us to use  three economic application and analyse how the firm is getting affected by all these  concepts.All the links between the concept and the firm were searched and then put forth in the best way possible.

reference list

                                   REFERENCE:

www.google .com

http://www.mcdonalds.com/us/en/our_story/our_history.html
 www.nytimes.com/.
www.investopedia.com/articles/03/012703.asp
www.extension.iastate
www.tutor2u.net/economics
www.economicsonline.co.uk
economics.about.com › ... › Terms Beginning with P‎