Research Paper on Mexican Cuisine Thriving in Brooklyn: Joy Wood Chicken Tacos

Introduction

Brooklyn is one of the urban centers in New York where traditional Mexican cuisine hotels thrive irrespective of the existing competition and population dynamics. The majority of the residents are Mexican ethnic group and other ethnicities that live within the town have also fallen in love with Mexican food. Joy Wood Chicken Tacos hotel opening up in the area taps on the high demand of the Mexican food in the area and also the availability of human resources and materials of production, which is instrumental in continuous profitability. This essay will assess a one month hotel performance using important elements of the theory of the firm to assess the hotel zero economic profit and inference on the long-term potential and business model.

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Number of Meals Sold and Prices Charged

The meals sold in a hotel are dependent on not only the supply and demand dynamics of the market but more importantly the cost of production and the ease of accessing the production materials (Arbelo, Perez-Gomez, & Arbelo-Perez, 2018). The sales of a product should be enough to cover for the production cost and ensure that a business get zero economic profit. In this case, the hotel will be offering chicken tacos in this case without any improvement because that will not be an opportunity to increase the price in a perfect competition market. The choice of the one meal dinner is key in attaining zero economic profit by ensuring the ease of getting the raw materials which will be instrumental in reducing the fixed cost. The prices of the chicken tacos offered in the hotel will be subject to the average market price. The existence of multiple firms selling the same product will force the hotel to sell at the market price or below with the aim of attracting more customers. The market price is determined by the forces of the demand and supply, which means that all the businesses are price takers in a perfect competition market (Indounas, 2018). Based on the theory of price, Joy Wood chicken tacos' price will be determined by the supply and demand in the market in the short run.

Price Elasticity of Demand

Price elasticity of demand refers to the measure of change in the overall quantity of food that will be on-demand depending on the changes in price. The existence of multiple direct substitutes due to hotels offering similar chicken tacos for dinner means that the hotel product price is very elastic. This means that a small change in price can significantly affect the amount of chicken tacos demanded because, in a perfect competition market, the consumers have perfect information on the products and the sellers (Indounas, 2018). The primary factor that causes price elasticity is the fluctuating demand in the market. The higher the demand, the higher the market price for the chicken tacos. Overcoming the price elasticity impact on demand will require the hotel to use competitive negotiating for the raw materials, and to invest in technology to reduce the total unit cost of production (Harvey, 2018). Keeping track of the variable costs can be instrumental in preventing the price elasticity of demand by ensuring that the cost of production is within a certain margin.

Total Revenue

The total revenue for Joy Wood Mexican Cuisine hotel is the total sales of the chicken tacos. The fall in price leads to the decline of the total revenue, and the total revenue is maximized when the marginal revenue is zero. The total revenue for the hotel can be maximized by selling at a price where marginal revenue is zero. Any increase in the marginal revenue to positive leads to the increase in the total revenue, and the maximization is not achieved.

Fixed Costs and Variable Costs and Marginal Cost

Fixed costs are costs that do not change with an increase or decrease in a unit of product. Fixed costs are expenses that are paid independent of any business activities. In the case of Joy wood Chicken Tacos hotel, the fixed costs will include; insurance, property tax, rent, depreciation, and employee salaries. The hotel will seek to maximize profits by reducing the fixed costs, which significantly influence a business profitability. Amongst the approaches that the hotel can use to increase profitability is buying off the operating space instead of paying monthly rent and investing in technology to reduce the labor costs. Variable costs vary with the level of the output, and in the case of the hotel, the number of chicken, electricity, wheat, and vegetables required to create chicken tacos will change depending on the level of demand. As such, buying in bulk to attract discounts and installing refrigerators can be a good approach to reducing the variable costs to ensure sustainable economic profit for the hotel. Lastly, the marginal cost is the cost incurred by producing an additional unit of the meal. The production of chicken tacos can only increase if the price is higher than the marginal cost. Besides, buying raw materials in bulk and preventing changes in raw materials cost due to change in demand can be instrumental in maintaining a profitable marginal cost.

Cost of Inputs

The cost of inputs refers to the cost of raw materials required in the production of a complete unit of production to serve dinner in a hotel. The cost of inputs is high when one is buying a single unit at the retail price and low when they are bought in bulk. Market elements such as the growth in raw material demand and seasons such as summer when there are many outdoor activities the prices of the inputs go up. To prevent this scenario, which affects the economic business profit, buying inputs in bulk can be instrumental in reducing the cost of inputs and promoting profit sustainability (Teece, 2016).

Total Cost and Unit Cost (Average Total Cost)

The average total cost describes the cost per unit of production, and it is calculated by dividing the sum of all production costs by the total output. The average total costs changes with the change in demand and supply. The growth of inputs demand increases the total production cost, whereas the increase in the supply of raw inputs decreases the overall production cost and the average total cost. The business must observe the fluctuations in the inputs supply and demand to prevent the negative impacts of average total cost fluctuations.

Diminishing Marginal Product

The diminishing marginal product refers to the situation where the increase of input while maintaining a steady quantity of other inputs initially leads to the rise of output but eventually declines, which is due to the law of diminishing marginal productivity. For instance, producing chicken tacos require many inputs such as chicken, wheat, labor, and vegetables. An increase in the amount of chicken will lead to a rise in the number of tacos initially, but this will decline as the amount of chicken continues to be increased, which can lead to poor quality and not improved quality as intended.

Economies and Diseconomies of Scale

The economies of scale refer to the reduction in the average cost due to the growth of sales. Economies of scale is accompanied by benefits such as increasing the production scale, maximization of capital, reduced cost of production, and higher profits (Jin & Kim, 2017). Diseconomies of scale occur when the cost per unit of production rises due to the rise in the outputs. This shows that growth can bring both benefits and disadvantages to hotel operations. Although increasing sales through landscape production of the chicken tacos can benefit the hotel, continued mass production can attract diseconomies of scale such as compromised quality and growth of cost per unit. In a perfect competition, market economies of scale will not be realizable because many firms are producing a similar product for a common market.

Total Profit and Profit Per Unit

Total profit refers to the base income used to compute tax, and also it is used to determine the dividend for the shareholders. The total profit is determined by deducting the total costs from the revenues. On the other hand, profit per unit is the revenue per unit minus the cost of production per unit. Both the total profit and the profit per unit are essential in a business because they help in contribution margin analysis, which helps in determining the breakeven point of the business. The high demand for hotel products leads to a high total profit and can be influenced by maximizing the profit per unit by reducing the overall cost of the inputs. Buying in bulk or anticipation of inputs price variation can help maximize the profit per unit through discount purchases and preventing the negative impacts of the low inputs supply in the market.

Possible Challenges

Inability to Change Food Prices

In a perfect competition market, the consumers and the sellers have perfect market knowledge, which means that a change in price can have detrimental impacts on a business sales. This means that charging a high price for the food to increase revenue and profits is not possible because the hotel has to put up with the average market price (Indounas, 2018). Since all hotels in Brooklyn in a perfect competition market are price takers changing prices upwards will be impossible.

Lack of Incentive for Innovation

The fixed prices mean that every hotel takes up the market price, and other firms are producing identical products (Indounas, 2018). As such, the profits will remain fixed for the hotel in the perfect competition market. Irrespective of the demand, the firms will continue to make similar sales and revenue.

Executive Summary

The most effective business model for the hotel in Brooklyn, NY, is the brick and mortar business model for the hotel. However, to meet the operating costs and attain zero economic profit, the hotel will be forced to open for lunch and dinner. The fact that Brooklyn offers a perfect competition market means that the hotel will incur no advertisement or innovation cost, and the profits will be determined by the ability of the hotel to negotiate with the suppliers for best input prices.

Key Assumptions

Perfect Competition

The primary assumption is that the consumers have perfect information on the products and the sellers, and there is minimal product differentiation. As such, many competing hotels besides Joy Wood Chicken Tacos will be selling direct substituting products. This means that the hotel will not incur any advertisement costs, and the demand and supply will directly determine the price of the product.

Availability of Raw Materials

The raw materials will be readily available in the market, and the hotel will be able to negotiate the best prices and quantity, which will be instrumental in attaining zero economic profit provided the market price will be standard and set by the market demand and supply.

Minimal Fixed Costs

The hotel will not pay monthly house rent; instead, the hotel will acquire a permanent place which will make operations sustainable and cost-efficient.

Goal Set

1. Zero economic profit.

The primary goal set for the hotel is to make a zero economic profit in its operations because of the perfect competition market, which will make it hard for any innovation or advertisements to attract greater sales than the competitors. Therefore, the hotel will seek to avoid advertisement and innovation efforts, which will be costly and detrimental to the goal of attaining sustainable zero economic profit.

2. High bargaining power and buying inputs in bulk.

Due to the inability to use economies of scale to lower the production cost, the hotel will have to rely on its ability to negotiate better input prices and discounts to reduce the production cost and increase the overall profit per unit. The use of technology will also be instrumental in pr...