Production and Costs: Managerial Economics

Trident University International Production and Costs Name BUS530 Module 2 SLP Managerial Economics InstructorDate 1 What do you think the main expenses will be for your business? Make sure to discuss labor, rent, equipment, and any other major expense you can think of. Fast-food restaurant owners need to carefully control the costs and especially, labor, food and beverage costs, which vary and cannot be avoided. Despite fast foods being low priced, the cost of meals and beverages remains one of the biggest expenses for the establishments and spending more on the foods and beverages will make it harder to make a profit. Direct operating expenses and the general administration expenses differ depending on the location, type of business and level of activities. The purchase of raw materials, labor, rent and utility, depreciation, marketing, and equipment are the major expenses, but there are other costs such as licensing and permits. Bigger establishments tend to focus more on site improvements, and when starting up the opening supplies and inventory are included in the purchases. Even as there are many low wage earners in the fast-food restaurant sector, the labor costs are one of largest share of the expenses including paying for seasonal workers since there are at times when there is higher demand for the fast food products. There is pressure to increase the minimum wages, and the fast foods restaurant industry is one of the most affected. However, if the wages increase further there may be attempts to increase food prices even more and this may also affect the payroll and employee benefits Rent is a fixed expense and the choice of location influences the rent payable and for the more established fast food restaurants lease on buildings are common including for the franchise businesses. When restaurants are located in places with a lot of traffic, the likelihood of success is greater, but renting in the best locations is also more expensive. Thus, there is a need to strike a balance between finding a suitable place and paying the lowest possible rent. Equipment costs cover the equipment that is bought for the long-term to be used in preparing food, but also the seating. When you start with the fast food establishment restaurant, equipment costs are likely to be a large part of your budget. Preparation to purchase the most appropriate to appliances such as ovens, dishwashers, kitchen utensils, fryers freezer, cutlery, furniture and even electronic devices at appropriate prices is important. Choosing appropriate equipment at low costs reduces the costs of equipment and with Google searches it is now easier to compare prices rather than buying the most expensive items in each category of equipment. 2. Do some research on the internet or from your own personal contacts to get a ballpark estimate of how much the specific expenses are in your home town for the items that you listed in your answer to Question 1 above. You can use Craig’s List or similar webpages to get an id...