Dunkin Donuts

2372 Words Nov 3rd, 2012 10 Pages
Dunkin Donuts One of the major economic areas in north central Wisconsin is Wausau. The city is home of the most popular technical college. The love of coffee and ice cream brings the owner to open a Dunkin Donuts/Baskin Robbins near the college. Commercial space is available to build a facility, and the spot is right. The competition is a few fast food chains and two bakeries. The city has no Starbucks, but does have a Dairy Queen that is at the other side of town. The market structure is a monopolistic competition. The area has a few large assorted sellers, products are differentiated, and there is easy entry and exit. The products are differentiated by the brand name; product attributes, and has the perfect environment. The …show more content…
At $150 the owner would have to sell at least 150 cups of small coffee to break even on just this product.
Total Revenue Test The importance of price elasticity and total revenue are related. The owner can use the total revenue test that can determine whether demand is elastic or inelastic. The test compares the change in total revenue corresponding to the changing price. The total revenue test can assist a company to maximize revenue. If a good is elastic, the owner will not want to change prices because even a small change would decrease demand and vice-versa. By using the total revenue test the owner can avoid pricing mistakes that may be costly. Along the demand curve it can be seen that raising the price reduces the quantity demand, point A.

Profit Maximization To determine the profit maximization quantity, marginal cost equals marginal revenue (MR=MC) will be used. The main office sets minimum pricing for the franchisee to base their prices off. In the short run, the company can maximize profit at which MR=MC. In the long run the franchisee will have to look at price equaling the average total cost (P=ATC) because the price will exceed ATC resulting in an economic profit. The downfall is the profit will entice new companies to enter into the industry, such as Starbucks. Total profits increase when marginal profit is

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