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HIGHER COLLAGE OF TECHNOLOGY BUS 1103 Economics for Managers and BUS 1203 Software Applications for Business McDonald Group 3 Fatima Mohammed Hamdan H00235092 Halawa Saeed Ali Erwaished Al Shehhi H00224578 Shaikha Ahmed Al Mehrezi H00225485 Aaesha Waleed Al Nuaimi H00227857

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Page 1: BUS 1103 Economics for Managers and BUS 1203 Software ...€¦  · Web viewBUS 1103 Economics for Managers and BUS 1203 Software Applications for Business. McDonald. Group ... It

Higher Collage of Technology

BUS 1103 Economics for Managers and BUS 1203 Software Applications for Business

McDonald

Group 3

Fatima Mohammed Hamdan H00235092

Halawa Saeed Ali Erwaished Al Shehhi H00224578

Shaikha Ahmed Al Mehrezi H00225485

Aaesha Waleed Al Nuaimi H00227857

14/10/2012

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Table of Contents

Introduction..............................................................................................................................2

Main Products & general characteristics of the firm...........................................................2

a. Analysis of the firm’s supply and demand:........................................................................4

Prices of competing products/services:..................................................................................5

Number of consumers:...........................................................................................................7

Technology:............................................................................................................................8

Number of competitors:..........................................................................................................9

Costs of production:...............................................................................................................9

Indicate one other non-price determinant.............................................................................10

1. Analysis of the Price Elasticity of Demand for one of the products...........................12

Bibliography...........................................................................................................................13

1

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Introduction

Main Products & general characteristics of the firm

a. Give brief background information about the business, including, total

revenue/sales and the location of its headquarters.

About many years ago this restaurant was established in 1954, by a man

named Ray Kroc. It was one small restaurant in California but many years

later it became bigger and bigger and they have more than 33,000 restaurants

serving nearly 68 million people in more than 119 countries every day.

(McDonald's, Our Story, 2010-212). The address for McDonald's corporate

headquarters is: McDonald’s Corporation, 2111 McDonald's Dr, Oak Brook,

IL 60523. (G, 2008). We visited its branch on Al Dhait at Al safer mall and

they say that our total revenue was 600000. (Employee, 2012)

b. Identify three important products / services that this business sells. Describe the

products. Research how the prices of these three products/services have changed

in the last two years. List these prices and, the amounts sold (estimate, if actual

amounts are not available.) Create an Excel worksheet as

shown below. Worksheet instructions will be given in BUS

1203 Software.

Chicken McNuggets introduced in 1980 contain potatoes, juice

(Pepsi or Coke…etc.), and chicken nuggets with dipping sauces.

Moreover, at that year they added more sauces. (Wikipedia,

2012) In 2011 it is price is 17 PED. (Employee, 2012)

Big Mac is another item from McDonald and it is a double

layer of meat or beef with sauce and American cheese, crisp

lettuce, minced onions and tangy pickles with juice (customers

can choose the juice they want whether it is Pepsi or coke…

2

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etc.) and potato. (McDonald's, There is only one, 2010-2012) In 2011 it is price

became 17 PED. (Employee, 2012)

Another item from McDonald is Happy Meal. This good was

produced from Burger Chef's Funmeal concept of a children's

meal and it was in 1979. They bring a box contains potato,

juice (customers can choose the juice they want) and burger

(beef or chicken) and it is inside bread. Furthermore, cheese,

mayonnaise and lettuce were added. Happy Meal is less than the adult meal and

contains a toy (customers can choose the toy they want). (Wikipedia, 2012).

Happy Meal is for 11 PED. (Employee, 2012)

See Excel file for the table. ( Change in Price in 2 years).

c. Discuss two opportunity costs your firm needs to consider in its business

decisions.

Opportunity cost is something that you leave because of scarcity and you do

something else. One of the opportunity costs they choose to sell more beef than

chicken because of the taste. The other opportunity cost they face is to sell rice.

d. Describe one scarcity issue your firm has to deal with on a regular basis. How do

they deal with the issue?

They face scarcity on lack of manpower, so they deal with the

issue by increasing the price of their products. (Employee, 2012)

a. Analysis of the firm’s supply and demand:

Consumers’ income:

As income increases, demand increases. There are two types of goods which

are normal goods and inferior goods. Normal good: a good for which the

demand increases as income rises and decreases as income falls (happy meal

(burger)). While, products which are increasing as income falls, and vice

3

Scarcity means we have limited resources but unlimited wants to fulfill

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versa, are inferior goods, so burger is an inferior good.

(Hubbard,G,.O’brien,A,.Eid,A,.El Anshasy,A, 2011). In the chart Y-axis

shows the price and X-axis shows the quantity demand. An increase in

income, demand will shift to the left because it is an inferior good.

(Hubbard,G,.O’brien,A,.Eid,A,.El Anshasy,A, 2011). The graph shows that

supply curve unchanged and demand curve shift to the left that led a decreases

in equilibrium quantity and equilibrium price (here we talk about consumers

perspective able and willing to buy).

Prices of competing products/services:

There are two types of related goods. Substitute’s products that can be used

for the same purpose (Happy meal and Chicken McNuggets). Substitute and

demand are inversely proportional. Furthermore, complements products that

are used together (Pepsi and burger). Complements and demand are directly

proportional. (Heweidy, 2012). The graph shows two lines one is vertical and

4

Consumers’ income

29000

10

45000

11

S0

Quantity

Price

D1

D0

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the other one is horizontal. They called X-axis and Y-axis. Y-axis shows the

price of the good (Happy meal). While, X-axis shows the quantity of the

product will sell. Moreover, there are three curves two of them show demand

the other one shows supply. Besides that, demand number zero has shift to the

right because consumers buy less of the substitute good (KFC) and more of

this good (McDonald) and that happened with an increase of the price of

substitute or any other factors. We have another thing which complementary

good it’s also will affect the demand. And also, the equilibrium price and

equilibrium quantity for both demand and supply were increased.

Number of consumers:

Population and demographics are two ways to describe number of consumers.

Population is the number of people who live in a certain area. More population

means increased demand. Demographics are the characteristics of a population

with respect to age, race, and gender…etc. (Heweidy, 2012). This affects

demand for certain products according to the type of demographic. (Younger

means increases in demand for McDonalds (More children, more happy meals

will be sold)). When more population or younger increases (demographic)

5

Prices of competing products

11

45000

D1

29000

10

D0

S0

Quantity

Price

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demand shifts to the right and both equilibrium price and quantity will

increase.

Technology:

Technological change is a positive or negative change in the ability of a firm

to produce a given level of output with a given quantity of inputs. If

technology is applied correctly, supply increases (shift to the right). (Heweidy,

2012). For example if workers and machines used correctly, supply curve will

shift to the right. (Hubbard,G,.O’brien,A,.Eid,A,.El Anshasy,A, 2011). The

equilibrium price was from 10 PED in 2009 to 11 PED in 2011 which means

eliminating previous equilibrium price by decreasing it. While, equilibrium

quantity eliminated by increasing from 29000 Happy Meal in 2009 to 45000

Happy Meal in 2011 which means increased in equilibrium quantity.

6

Number of consumers

11

45000

D1

29000

10

D0

S0

Quantity

Price

Technology

10

45000

S1

29000

11

D0

S0

Quantity (Happy Meal)

Price (PED)

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Number of competitors:

When number of firms that sell a certain product increase, supply increases,

and vice versa. (Heweidy, 2012) The competitors for McDonalds are KFC,

Burger King, Texas Chicken, Southern Fried Chicken and Hardee’s...etc. Here

we have to talk about firms perspective (able and willing to sell at every

price), so when new firm enter the supply curve will shift to the right, and vice

versa. (Hubbard,G,.O’brien,A,.Eid,A,.El Anshasy,A, 2011). Lead equilibrium

price to decrease and equilibrium quantity to increase.

Costs of production:

When prices of substitutes increase, supply increases and vice versa.

(Heweidy, 2012). Firms often choose which product to produce.

(Hubbard,G,.O’brien,A,.Eid,A,.El Anshasy,A, 2011). Big Mac and Chicken

McNuggets are called substitutes in production. Moreover, if the price of

Happy Meal increases, Happy Meal will be more profitable and the company

will shift some of their productive capacity away from Chicken McNuggets

and toward Happy Meal. McDonald will offer fewer Chicken McNuggets for

sale at every price, so the supply curve for Chicken McNuggets will shift to

the left. Y-axis shows the price. While, X-axis shows the quantity of Happy

7

Number of competitors

45000

10

S1

29000

11

D0

S0

Quantity

Price

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Meal sold. The graph shows decreases in equilibrium quantity and increase in

equilibrium price.

Indicate one other non-price determinant

(Expected Future Prices) When these increase, supply falls (because suppliers

wait until prices rise to make more profit) and vice versa.

(Hubbard,G,.O’brien,A,.Eid,A,.El Anshasy,A, 2011). The diagram shows two

lines one is a horizontal line which is the quantity for both demand and supply

and vertical line which is the price. S0 and S1 show supply curve and D0

shows demand curve. If firms are expected future price of the product by

increasing (increasing price of happy meal). Supply curve will shift to the left

because they want to take advantage from the higher prices in the future, so

they will sell fewer now than the future. (Hubbard,G,.O’brien,A,.Eid,A,.El

Anshasy,A, 2011). Moreover, when demand curve remains unchanged, supply

curve will shift to the left. Thereby, decreases in equilibrium quantity (from

29000 to 45000) and increases in equilibrium price (from 10 to 11) will occur.

8

Costs of production

11

29000

S1

45000

10

D0

S0

Quantity

Price

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1. Analysis of the Price Elasticity of Demand for one of the products.

Choose one of the products/services you identified in ‘2a’ above.

a. How would you characterize the price elasticity of demand (PED) for this

product/service? Refer to the ‘determinants’ of elasticity mentioned on pages 146

and 147 of your textbook.

1. Availability of close substitutes:

McDonald has many substitutes such as KFC and Texas chicken and the more

available substitutes exist, the more elastic, the prices become. (Heweidy, 2012)

2. Passage of time:

When time passes short (such as a month) supply curve for burger will be

inelastic. Moreover, the more time passes (such as a year) the more elasticity there

will be. (Hubbard,G,.O’brien,A,.Eid,A,.El Anshasy,A, 2012)

3. Definition of the market:

9

Expected Future Prices

29000

11

S1

45000

10

D0

S0

Quantity

Price

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The more narrowly we define the market the more elasticity there will be, and

vice versa. Happy Meal has many other things you can buy instead of it, so it is

elastic because the market is big.

4. Share of a good in a consumer’s budget:

The less share of the product share in the consumer’s budget, the less elastic this

product price is and vice versa. However, every person gains different salary, so

hamburger will be elastic. (Heweidy, 2012)

5. Luxuries versus necessities:

Necessary products are less elastic and hamburger isn’t necessary, so it will be

elastic.

b. Draw a diagram showing the price elasticity of demand you identified. If you

don’t have actual figures, use page 145 charts: which one would best represent the

PED for the product you chose?

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Bibliography

Employee. (2012). McDonald. (F. A. Al Shhehi, Interviewer)

G, E. (2008). Where is the McDonald's headquarters located? Retrieved November 24, 2012,

from Yahoo: http://answers.yahoo.com/question/index?

qid=20080129061252AA2BawX

Heweidy, I. (2012). Economics.

Hubbard,G,.O’Brien,A,.Eid,A,.El Anshasy,A. (2011). Economics: Arab World Edition.

Harlow: Pearson Educaion.

Hubbard,G,.O’brien,A,.Eid,A,.El Anshasy,A. (2012). Homework and Tests: Quizzes & Tests.

McDonald's. (2010-2012). There is only one. Retrieved November 24, 2012, from

McDonald's:

http://www.mcdonalds.com/us/en/food/product_nutrition.sandwiches.255.big-

mac.html

McDonald's. (2010-212). Our Story. Retrieved November 24, 2012, from McDonald:

http://www.mcdonalds.com/us/en/our_story.html

Wikipedia. ( 2012, November 19). List of McDonald's products. Retrieved November 24,

2012, from Wikipedia: http://en.wikipedia.org/wiki/List_of_McDonald's_products

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