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Economics Coursework Assignment: Big Mac - Essay Example

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Big Mac Name Date McDonald’s is the largest food chain of the world. It is present almost everywhere in the world. It has so wide global presence that decision makers often use the products of McDonald’s to devise economic measures of well being. One such measure is purchasing power parity…
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Economics Coursework Assignment: Big Mac
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Economics Coursework Assignment: Big Mac

Download file to see previous pages... The paper will be purely economics and will make use of theories that were developed in the past and will apply them to the present scenario. The paper will be deductive in nature as it will test various theories that were developed sometime back. (Daft 1994) Big Mac was developed by one of McDonald’s earlier franchisees Jim Delligatti. The product in the early years was positioned as a burger with two beef patties. Later the product was positioned as a hip hop product which is liked by everyone. In 2004-2005, McDonald’s realized the importance given by people to the nutritional value of what they eat and they positioned the product as a “healthy product”. This is how McDonald’s has achieved high growth rate of the brand and achieved great sales. The product is a classic and has been churning in great amount of money for the company. Big Mac simply is a branded beef burger. It is positioned as a burger that is made from high quality beef. It falls under the umbrella brand of McDonald’s that leverages its position as compared to other beef burgers around. Although the positioning of Big Mac hedges it against competition yet it is not completely free from economic influences. Economic influences, both at macro and micro level, affects the burger’s demand supply and overall position of the company. (Anderson 1998) There are several factors that affect the demand and supply and profitability of the company. The greatest factor that affects the McDonalds and Big Mac’s demand is the level of income. The more income the people have, the more they are going to spend on their meals and in turn more money will be spent on Big Mac. In other words, as soon as national income of a country rises without any increase in tax or galloping inflation, the disposable real income of people also rises. They have more money in their pockets and as a result they can spend more money on Big Mac which generates high demand for Big Mac. The other factor that affects the demand of McDonald’s is the increase in population it is serving. For example, by opening up its branches in far flung areas and different countries, McDonald’s is increasing its customer count and as a result demand for Big Mac increases as McDonald’s expands. Another factor that directly affects the McDonald’s demand is the availability of alternatives. There are several hamburgers available but few have the same quality of value proposition as Big Mac. This affect has been created by constant marketing efforts. McDonald’s, as a result, enjoy a great position in the market and very few people compare McDonald’s with other street level fast food chains. Therefore, there are very few alternatives available and hence people cannot switch to other hamburgers. This results in constant and high demand for Big Mac. (Daft 1994) The profitability of any organization depends on high margins and volume. McDonald’s try to achieve both and therefore it is a very profitable company. McDonald’s maintains high margin by controlling its fixed and variable costs. There are specialized control systems being used at every branch level in order to control costs. Similarly, McDonald’s achieve high volume growth rate by constantly opening new branches and increasing its target market. This has resulted in high growth rate in production volume and hence McDonald’s achieves great profitability by achieving high volume and operating on high margins. (Brue & McConnell ...Download file to see next pagesRead More
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