PROJECT TITLE: ECONOMICS FOR MANAGERS


Table of Contents

1. Main Products & General Characteristics of the Firm 2
2. Analysis of the firm’s supply and demand: 7
a) Change in consumers’ income: 8
b) Change in Prices of competing products/services: 10
c) Change in the number of consumers: 12
d) Change in technology: 13
e) Change in the number of firms 14
f) Changes in costs of production: 15
3. Analysis of the Price Elasticity of Demand for one of the products. 17
Law of supply and demand 19
Bibliography 21

Main Products & General Characteristics of the Firm
ChicKing is one the fastest growing fast food chain in UAE. It has expanded from having a single unit restaurant in 2000 to over 75 outlets across the globe. There are 12 outlets of ChicKing in UAE itself. It has been serving authentic and one of the best chicken that is available in the market. It was first established in UAE under the franchisee obtained by the Banquet Foods International. It is very well known for using the choicest herbs, spices and flavors in its chicken and has a unique recipe that it has retained as a secret in the food market. It has developed the tagline of “Real Recipe, Real Taste, Real Fried Chicken” (CHICKING.COM, 2016). It is also known for the different varieties of burgers, rolls and wraps that it provides that has different ingredients which are very well enjoyed by its customers.

The launching of the ChicKing food chain in UAE, has been referred to as one of the most important international achievement by the fast food chain. It defines the various international strategies that are adopted in the fulfillment of the global marketing objectives across the food market. The demand of the people has been fulfilled through increasing the supply and specialization of the products that are made by the ChicKing restaurant. In this case, there are discounts provided by the ChicKing restaurant during the initial discount season to promote its most extensively eaten food items like the Royal crunchy, crunchy supreme apart from the wide range of pancakes that are globally popular. There are few items that are not sold in large quantities and Mexican grill wrap provided by it is one of them. The two items that were selected includes the Crunchy supreme and Mexican grill wrap mentioned two items in the menu were made available at about 8% discount that includes providing the crunchy supreme at AED 12 after providing a discount of 8% on its actual price of AED 13. The price of the Mexican grill wrap has been kept about AED 9 which was initially about AED 10 without the discounts. Hence, the sales for both the products has been obtained in the following table:

Table 1:
Year: 2015 – 2016
Discount season (August and September) Regular season (February and March 2016) Comparison
Product Name Discount price Quantity sold (D) Sales Revenue Regular price Quantity sold (D) Sales Revenue Change in selling price (in AED) change in total sales (in AED) gain or loss in %
Crunchy supreme 12 2,500.00 30,000.00 13 2,200.00 28,600.00 1 1,400.00 -4.6%
Mexican grill wrap 9 2,100.00 18,900.00 10 1700.00 17,000.00 1 1900.00 10.05%
Total sales 48,900.00 45,600.00 -3,400.00
Average sales daily 815.00 810. -463.33 -15.1%

The above table shows the sales comparison for both discount season and regular season. The data taken is for 60 days for both the season. The Discount season is for August and September 2015 of initial opening months. The regular season data is for February and March of 2016. There is increase in the price of both the products by AED 1 in regular reason. There is decrease in the sales of both the products due to increase in their prices, but there is different effect on the profits that has obtained from both the products.

The Crunchy supreme sales units were 2500 during the discounted season and it decreased to 2200 for the regular season. The price that was increased by AED 1 resulted in the decreasing of sales across the UAE market. For the change in total sales of the Mexican grill wrap, the change in the sales generated even though the number of quantities sold being reduced from 2100 to 1700, there was a major reduction of about AED 1900 in its sales during the two seasons. It has been shown in the table that there was a loss of about 4.6 % in the sales of the crunchy supreme in ChicKing whereas there was a loss of about 10.05% in the sales of the Mexican grill wrap.

The above graph shows the sales revenue comparison for both the products for both the seasons. It can be seen that the difference between the sales of the two food items is not very much different from the values that were obtained during the discount season. During the regular season, despite of the increase in the price of the product and decrease in demand of the products, there was a marginal decrease in the total sales of the two items. For the crunchy supreme, the change in the total revenue was about AED 1400, whereas for that of the Mexican grill wrap constituted to be as AED 1900.

The above graph shows the price comparisons for both the products during both the seasons. The price is increase by AED 1 for the Crunchy supreme and the same for the Mexican grill wrap, respectively in regular season as compared to the discount season. The discounted price of Crunchy Supreme was AED 12 and of the Mexican grill wrap is AED 9. The price increased to AED 13 and AED 10 respectively for both the products during the regular season in the market.

The graph describes sales comparison and changes in sales. There is more change in total sales revenue of Mexican grill wrap while there is less change in sales revenue of Crunchy Supreme. The overall impact on sales revenue is AED -3400.00 in regular season as compared to the discount season.
The restaurant is going to increase the production of Crunchy Supreme considering the high demand of the product in the market obtained through the higher number of crunchy supreme sold as compared to the Mexican grill wrap. To increase the production of Crunchy Supreme, it reduces the production of other products and affects the revenue. The restaurant has increase the production of Crunchy Supreme by 10 units daily and it has to compromise the production of Mexican grill wrap by 8 units per day. If we compare these, there is changes in the revenue as follows.

Regular season (Feb and March 2016) New production
Product Name Regular price Quantity sold (D) Sales Revenue Regular price Quantity sold (D) Sales Revenue change in total sales (in AED) gain or loss in %
Crunchy Supreme 13 2,200.00 28,600.00 13 2500.00 32,500.00 3,900.00 13.63%
Mexican grill wrap 10 1,700.00 17,000.00 10 1,500.00 15,000.00 -2000.00 -11.76%
Total sales 45,600.00 47,500.00 -1900.00
Average sales 15,333.33 14,533.33 -800.00 1.87%

There is increase in the revenue of Crunchy Supreme by 3900 AED but there is a decrease in the sales of Mexican grill wrap by 2000 AED. When the firm increases the production of Crunchy Supreme by utilizing the available resources, it reduces the production of other products like Mexican grill wrap. The restaurant has limited resources and it has to allocate the resources for production of different products. The increase in production of Crunchy Supreme reduces the production of Mexican grill wrap. The decrease in production of Mexican grill wrap reduces the revenue for this products. The increase in the revenue for Crunchy Supreme is of AED 3900 while the sale revenue for Mexican grill wrap is reduced by AED 2000. The overall position shows increase in total revenue of the restaurant. The opportunity cost for increasing the Crunchy Supreme is lower than the revenue obtained. It is advisable to go for this option.
The scarcity of any resources affects the business operations and requires proper management of scarce resource for getting maximum benefit from it. The restaurant faces the scarcity of quality raw materials as it emphasizes on the high quality of product through providing Halal chicken it has an adverse effect on the business revenue. The restaurant can produce more units of one products then it has to compromise the production of another product. It is the same as we have discussed about the increase in production of Crunchy Supreme. There are many issues that are faced by them in order to maintain their status of providing Halal compliant products.
Analysis of the firm’s supply and demand:

The researcher analyze the impact of demand and supply for Crunchy Supreme. There is high demand of this product in the market and the restaurant is able to manage the supply quantity in most of the times. Sometime there is more supply but less demand of the product. The below graph shows the impact in equilibrium prices due to change in demand.

The above graph shows there is change in the demand of product from Q to Q2 and it has also impact on equilibrium points and it moves from E to E2. The change in demand has impact on the equilibrium point. There are different factors which affects the demand and supply of the products. The different factors have different impacts on price and equilibrium. The following are different situations and their impact.
Change in consumers’ income:
There is a direct relation between the income of the consumers and the demands of the products. When the product is a huge success in the market, there would be a great influence in the demand of the products and the income of the products. The Crunchy Supreme is considered as normal product and it shows increase in the demand of the product sue to increase in consumer income. In Dubai, there is a tremendous increase in the income of consumers in last decade as Dubai is one of the fastest growing economy of the world. The increase in the income of consumers increases the demand of Crunchy Supreme and it supports the statement that the product is a normal product and have direct relation with the increase in income and demand.
A simple graph that shows the relationship between the changes in the income and the demand of the product has been shown below:

Thus, it can be stated that any kind of change in the consumer’s income would directly affect the demand of the Crunchy Supreme developed for increasing the market share of the company. It involves developing a considerable amount of research to understand the income demographics of the people that are going to be the potential customers for the company’s product. The effect of the change in income on the demand of the product can be obtained through an elasticity curve that has been developed below:

The above graph shows the income effect on the demand of the product. The increase in income increases the demand for superior or normal products while decrease the demand for inferior products. The increase in income increases the purchasing power of consumers and motivates them to increase the demand of normal products. In our case, increase in income from Q_1 to Q_2 increase the demand from D_1 to D_2 though there is increase in the price of the product. This shows positive income effect and concludes that our products are normal not inferior (Robbins, 1997).
Change in Prices of competing products/services:
ChicKing is selling Crunchy Supreme at the price of AED 12 per piece. They have increased the price of the product to AED 13 from February onwards. ChicKing was selling the crunchy Supreme at the rate of AED 13 and was able to sale 1100 units per month. When there is change in the price of competitor, there is increase in the sales to 1250 units for the month of September 2015. The simple graph given below shows the impact of change in competitor’s price (Tellis, 1988).

The below graph shows the relation between increase in competitor’s price and its impact on our products. The increase in competitor products makes our products relatively cheaper and increases the demand of our products. In the graph, the increase in competitor’s price from P1 to P2 increases the demand for our products from Q1 to Q2. When the prices of the competitors increase, the customers tend to move to our product and there would be shifting of the brand loyalty of the customers.

This will generate positive results for the company through increasing the demand of the company’s products across the international market.
Change in the number of consumers:
In this case, the major customers belong to the age group of 12-35 years. The average family income of the consumers are AED 1, 00,000 to AED 2, 00,000 per year. If there will be change in the consumer category, it will affect the sales. The new category of age group above 35 years, there will be reduction in total sales.

The above diagram shows the impact of change in c ustomer category nd its impact on demand. The target group is 12-35 years age group but when we target the new age group of above 35 years, it reduces the total demand from Q_1 to Q_2 and shifs the demand curve from D_1 to〖 D〗_2. Thus, it can be seen that for different age-groups, the effect of the chainge in number of consumers is different and it depends on the interest and consumer behavior of the potential customers that are belonging to different age-groups.

Change in technology:
The new technology helps in generating more business. In case of restaurant, online booking, order booking software, billing software helps in increasing the performance of the staff and helps in serving more number of customers. There are many forms of technological support also reduces the consumer time and increase the satisfaction level. There is positive impact on sales and demand. Technology tends to be one of the most important factor in determining the quality and service as well as the comfort that the product provides to the consumers. It involves developing innovative technologies that would be user friendly and provide the customers with an ultimate user experience across the market. Technological implications in the company has direct relation with the demand. Hence, it can be stated that it increases with the increase in demand. Also, there is hardly any relation between the technology and prices of the product and in fact in some instances, use of technology has helped in reducing the prices.

The technological changes affect the total demand of the products. The above graph shows the impact of technological changes on the demand. The change in technology, increases the demand from Q_1 to Q_2. Though there is no change in the price of the product. It also change the equilibrium point and shift it to new point at right hand side.

Change in the number of firms
The increase in number of competitors affects the sales adversely. The more competition provides more options to the customers and switching cost in case of restaurant is zero. The customer shifts to competitor products very frequently. The higher the competition, lower will be the sales.

When there are new competitors entering the market, there is a considerable amount of increase in the shifting of the customers to other food chains and this adversely affects the sales of the ChicKing products.

Changes in costs of production:
The increase in production cost have two effects either increase in sales price or reduce the profit. We consider the example of increase in the raw material price for Crunchy Supreme and it reduces the profit of the firm. The simple graph that shows the relationship between the changes in costs of production and the supply of the product.

When the firm increases the sale price to maintain the increase cost of production, there will be decrease in sales (Tellis, 1988).

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

The researcher choose the Crunchy Supreme for understanding the price elasticity of demand.
Discount season Regular season
Product Name Discount price Quantity sold (D) Regular price Quantity sold (D)
Crunchy Supreme 12 2500 13 2200.00

There are different factors which affects the demand of the products like income, price of competitive products, consumer tastes and preferences, number of buyers, future expectation etc. In our restaurant business, demand is more sensitive to price as compared to other determinant of demand. The demand is sensitive with the changes in price and it is price elastic. The increase in the price reduces the sales and it is concluded that the demand is price inelastic. The determinants of price elasticity of demand are the demand as well as the prices that are continuously changing while observing different trends in the global or local market. It is very much depended on the product and the popularity that it develops in the market. The change in demand and the change in price are the two significant characteristics that are affecting the development of the price elasticity of demand for the products that are developed in a company. In this case, the Crunchy Supreme is the product for which the production has been increased. The demand for the product is developed through establishing the data regarding the increase in price and the sales that the product, that is, the Crunchy Supreme has in the market. The logical reasoning can be derived from the following formula:

Price Elasticity of Demand = (Percentage change in demand quantity)/(Percentage change in prices.)

The different values of Price Elasticity of Demand and its classification has been shown:

When the values of price elasticity is between 0 to 1, the plastic elastic demand is inelastic.
When the values of price elasticity is greater than one, the plastic elastic demand is elastic.
When the values of price elasticity is one, the plastic elastic demand is unit elastic.

The mid-point formula for calculating price elasticity of demand is as follows:

Where,
Q_1 represents the initial quantity of demand before increasing the production
Q_2 represents the final quantity of demand after increasing the production

P_1 represents the initial price before increasing the production
P_2 represents the final price after increasing the production

The main purpose of the mid-point elasticity formula is to get the price elasticity of demand as well as price elasticity of supply and also income elasticity of demand.

The table shows the price elasticity of demand calculations.
Discount season Regular season
Product Name Discount price Quantity sold (D) Regular price Quantity sold (D) Q2-Q1 (Q2+Q1)/2 P2-P1 (P2+P1)/2 Elasticity of demand
Crunchy supreme 12 2500 13 2200 -300.00 1350 1 12.5 -0.28181818 0.28181818 -2.77

The calculation shows the price elasticity of -2.77 which indicates inelastic demand. The result in “a” section also suggests the same result of relatively elastic demand. There is inverse relation in price and demand and it is the reason for same result in both the theoretical and calculations.

Law of supply and demand
Supply and demand law are dependent on the market prices for the development of their relationship. The law of supply can be termed as the increase in the supply of the good with the increase in the market prices. On the other hand, the law of demand states that there is a decrease in the demand of the product when the market prices increase.

Chart displaying Law of supply:

Chart displaying Law of Demand:

Bibliography
CHICKING.COM. (2016). WELCOME TO CHICKING. Retrieved from http://www.chicking.com.kw: http://www.chicking.com.kw/index.html
Robbins, L. (1997). On the elasticity of demand for income in terms of effort. In Economic Science and Political Economy , 79-84.
Tellis, G. J. (1988). The price elasticity of selective demand: A meta-analysis of econometric models of sales. . Journal of marketing research, , 331-341.