Microeconomics

|

Case Study 3 |

Economies & Diseconomies

ECN 202: Microeconomics |

|

Sale Economies and Diseconomies at McDonald’s

Having a menu that is uniform around the country has provided McDonald’s with economies of scale because they are able to buy products in mass quantity and distribute them throughout the country to their locations. Usually, when purchasing products in bulk the price is much cheaper than purchasing in small quantities. There are increasing returns to scale (economies of scale) when long-run average total cost declines as output increases therefore as McDonald’s reduces overhead for supplies and sales continue to increase returns of scale also increase. McDonald’s is able to remain profitable in a perfectly competitive market by offering standardized product (just named differently) at the same price as competitors but earning greater profit due to the lower cost of supplies.

Alternately, menu planning in other countries can be a bit more difficult for the company. Often times, the menu is somewhat tailored to the culture surrounding the location. For example, in addition to the staples on the universal McDonald’s menu, such as burgers and fries, in other countries you can get things such as spinach and McCurry (India), Shaka Shaka Chicken (Japan) Gazpacho (Spain) which are all foods that adapt to the local culture (21 McDonald's Meals You Won't Find In America, 2013). The fast food giant is able to draw in local consumers by offering dishes that relate to the tastes of the region while also offering foods available worldwide at any McDonald’s location which helps to attract the tourist population.

Sale Economies and Diseconomies at the Movies

The benefits of movies theaters having multiple screens and staggering movie times is simply to allow for more ticket sales. Because movie theater concession sales account for well over half the profits at most theaters it only makes sense to show more movies. I personally have never...