Red house restaurant in cranston RI 02905 - Admission/Application Essay Example

It is therefore vital to study the nature of demand, cost structure and effects of laws and international trade on the competitors in this industry. Analysis of Demand Economists describe demand as an economic principle that describes a consumer’s willingness and ability to pay a price for a specific good or service (Jain and Ohri 28). Price elasticity of demand is the correlation between the change in quantity demanded and price of a commodity. Price elasticity of demand is mainly used to measure the price sensitivity of consumers (Jain and Ohri 56).

The restaurant reviews it prices based on the volume of customers, for instance during the festive seasons; there is high demand for foodstuffs therefore the restaurant exploits on this to increase the prices by a considerable margin. During such times, the consumers may be indifferent to the prices being charged by the restaurant since they are prepared to spend. During hard times, the restaurant is forced to review their prices downwards since the quantity demanded decreases. See figure. Demand Curve Price D3 D2 D1 Quantity D1 No Price elasiticity ( This is during peak seasons such as holidays) D2 Low Price Elasticity ( During normal periods) D3 High Price Elasticity ( During hard economic times) Cost Structures Cost structures refer to the classification of the costs incurred by a company in production of goods or provisions of services.

For the production of products, the costs cover the growth of the idea, acquisition of raw materials and the actual creation of the product. A cost structure therefore covers the costs associated with each step in the process. The related costs are classified as either fixed or variable costs. Fixed costs include direct labor, manufacturing overhead, administrative overhead, warranty claims, and administrative overheads. Variable costs on the other had include direct materials, commissions, production supplies, piece rate wages, staff wages, bonuses, payroll taxes, travel expenses, entertainment expenses, direct materials, commissions, production supplies, and the discounts taken (Jain and Ohri 35).

These are costs incurred by the restaurant on a day-by-day basis. Cost Structure (Shut down ) Price per unit(dollars) 11.05 MC 10.35 ATC AVC 9.65 8.95                 8.25         Shutdown point 0 10 20 30 40 50 60 70 80 90 Q The shut down point of the business is at the lowest point of the average variable cost curve. At this point the business may shut down and stop operation. average variable cost, the company is at a point of indifference i.e. between continuing operations and shutting down.

Market Structure The Red House Restaurant operates in perfect/pure market structure. This market structure has many players who do not possess the individual power to influence prices. It is described as a perfect market since there are no entry and exit barriers to the establishment of Chinese restaurants in the region and most of the restaurants are in the business due the profit motive. The products sold among these restaurants are also homogenous and there are many consumers for the products.

There is also a perfect mobility of factors of production in the area. The consumers in the area are also aware of the prices and quality of the foods sold by the restaurants in the area i.e. there is perfect information. In this kind of economic condition, most of the players are “