I've discussed and analyzed the position of economy surrounding the international brands esp. McDonalds including the product portfolio, market structure, objectives, consumer segment, price elasticity, economic profit and much more.

1. McDonalds in Pakistan
Economic Analysis and Structure
Asad Ali 6/4/18 [Course title]

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TABLE OF CONTENTS
1. About McDonalds p2-p3
2. About McDonalds Pakistan p3-p6
 Product Portfolio
o Range of Products p3
o Possible Substitutes Products p3-p4
o Possible Complementary Products p5-p6
3. Economic Analysis p7-p26
 Company Type p7
 Economic System p7
 Market Structure p7-p8
 Objectives of the firm p8-p9
 Determinants of Demand p9-p12
 Determinants of Supply p12-p13
 Nature of Product p14
 Consumer Segment p15-p17
 Factors of Production p18-p19
 Labor Required p20-p21
 Demand Schedule and Curve p22-p24
 Price Elasticity of Demand p24-p25
 Revenue Maximization p25
 Economic Profit p25-p26
4. References p27

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About The Franchise McDonalds
McDonald's is an American hamburger and fast food restaurant chain. It was founded in
1940 as a barbecue restaurant operated by Richard and Maurice McDonald. In 1948, they
reorganized their business as a hamburger stand, using production line principles. The first
McDonald's franchise using the arches logo opened in Phoenix, Arizona in 1953.
Businessman Ray Kroc joined the company as a franchise agent in 1955 and subsequently
purchased the chain from the McDonald brothers. Based in Oak Brook, Illinois, McDonald's
confirmed plans to move its global headquarters to Chicago by early 2018.
Today, McDonald's is one of the world's largest restaurant chains, serving approximately
68 million customers daily in 120 countries across approximately 36,899 outlets. McDonald's
primarily sells hamburgers, cheeseburgers, chicken products, French fries, breakfast items, soft
drinks, milkshakes, wraps, and desserts. A McDonald's restaurant is operated by either
a franchisee, an affiliate, or by the corporation itself.
With the expansion of McDonald's into many international markets, the company has
become a symbol of globalization and the spread of the American way of life. Its prominence has
also made it a frequent topic of public debates about obesity, corporate ethics,
and consumer responsibility as consumer awareness in topics like health is increasing by the day.
Coming to McDonalds’ Pakistan, the franchise is owned by the very famous conglomerate
business group ‘Lakson Group’ that has its business headquarters at Karachi Pakistan since its
establishment in 1954. The ‘Lakson Group’ is chaired by Mr Iqbal Ali Lakhani currently.
McDonalds’ first restaurant opened in Lahore in September 1998 and a week later McDonalds’
opened up in Karachi. There are now 44 restaurants in 16 major cities of Pakistan. Karachi,

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Hyderabad, Lahore, Multan, Faisalabad, Kala Shah Kaku, Sialkot, Gujranwala, Gujrat, Islamabad,
Rawalpindi, Jhelum, Peshawar, Quetta, Sahiwal and Bhera
Despite of being one of the most successful and evergreen fast food chain in Pakistan,
McDonalds’ does not exploit its market and brand power. It engages in CSRactivities and is firmly
committed to serve the society and calls itself a ‘responsible citizen’ of the community.
McDonalds’ states that it helps establish and supports numerous educational, sporting and charity
programs to help a wide range of individuals.
Possible Substitute Products
During the 1990’s and early 2000’s, Mcdonalds was one of the first few fast food restaurants in
Pakistan and since Mcdonald’s Karachi is the focus of this report, only restaurants like ‘Tooso’
and ‘Mr. Burger’ were its primary rival businesses. With the passage of time the competition
severed.
Pizza is one product that can be a good substitute of a burger hence many Pizza restaurants in
Karachi can be named as good substitutes that are almost of the same price of Mcdonald’s meals,
ranging from a minimum of Rs 500 to a maximum of Rs 2000. Names of popular chains are as
follows:
 Pizza Hut
 Pizza Express (closed)
 Pizza Experts (closed)
 Pizza Point
 New York Pizza
 California Pizza

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 Dominos
In fact with the passage of time McDonalds’ also faces competition from other burger shops:
 Burger Lab
 Burger Mafia
 Big thick Burgers
 Burger Shack
 Hardees
 Burger King
 Johnny Rockets
Living in 2017, consumers have become more aware, and in fact, health conscious. Hence many
groups have started condemning McDonalds’s for its unhealthy products that are extremely
processed and laden with preservatives which cause health problems like obesity and heart related
problems. Restaurants like Subway and Hoagies have carved their niche in the healthy and natural
products that they use to make their meals with.
Pakistani’s are a nation that is very proud of their cuisine and believe that their cuisine is more
nourishing for their families and since Pakistan is since a developing country, Pakistanis want to
have products that are ‘money’s worth’ which is why cheaper substitutes like ‘Tipu Burger’, ‘Shahi
Pakwaan’, ‘Jeddah Food Biryani’ and many more chains of that type are enjoyed by the masses.
The more ‘keen to spend on food’ consumers tend to add more money in their budget to
eat heavier and more premium burgers from places like ‘Roasters’, ‘Arizona Grill’, ‘Gunsmoke’,
‘Café Aylanto’, ‘Cosmopolitan’ and many more of that tier of restaurants.

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Possible Complementary Products
Complementary goods are goods which give more output when used in combination with
other goods or that good which go well along with a certain product. They are known to have joint
demand, for example, if in a place, the demand of Cars increases, the demand for Petrol will
similarly increase. When speaking about complementary from an Economic perspective, they are
goods which have a negative elasticity of demand. This means a good's demand is increased when
the price of another good is decreased. Conversely, the demand for a good is decreased when the
price of another good is increased. If goods A and B are complements, an increase in the price of
A will result in a leftward movement along the demand curve of A and cause the demand curve
for B to shift in; less of each good will be demanded. A decrease in price of A will result in a
rightward movement along the demand curve of A and cause the demand curve B to shift outward;
more of each good will be demanded. Basically this means that since the demand of one good is
linked to the demand of another good, if a higher quantity is demanded of one good, a higher
quantity will also be demanded of the other, and if a lower quantity is demanded of one good, a
lower quantity will be demanded of the other. The prices of complementary goods are related in
the same way: if the price of one good rises, so will the price of the other, and vice versa.
In the context of McDonalds’, the best example of Complementary goods would start from
the burgers. All the items which are used in the making of burger; From the Sesame seed buns
obtained from wheat of the buns, from patties which are made from the mincemeat of Beef and
Chicken (and Mutton in Pakistan) fish fillets, the dairy products like Cheese, Mayonnaise made
from milk and butter, raw vegetables like lettuce, cabbage and tomatoes and even the cardboard
and paper used in packaging of burgers. All are Complementary products.

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Then in the side orders, the potatoes used and the salt used and then again, the cardboard used for
packaging all are goods which help serve fries with its meals. McDonald’s uses Knorr ketchups,
hence Knorr Ketchups are also a complementary product.
When it comes to beverages, the soft drinks provided by ‘The Coca Cola Company’, such as Coca
Cola itself, Sprite and Fanta. The milk which is used in making Shakes, the flavor of shakes like
chocolate, strawberry, caramel and mango, here the complementary source goods like coca beans,
raw strawberries, sugar and mangoes by themselves are complementary goods. Mcdonalds also
serves ‘Milo’, another complementary product. The plastic cups and cardboard cups and their
heads and the straws all made from cardboard and plastic respectively are complementary goods.
Then when it comes to desserts, the cream made from milk for the Ice-Creams, the biscuit
of the cone made from the confectionary products, the flavored syrups of chocolate, strawberry,
caramel, mango and vanilla, raw strawberries, sugar, and vanilla essence all are complementary
goods.

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Economic Analysis
Company Type
As stated in the Introduction, McDonalds globally and McDonalds Pakistan is a franchise
business, the headquarters are currently in Illinois.
EconomicSystem
Since all countries of the world operate on mixed economy lines with a mix of private firms and
government corporations, one can say that Mcdonalds Pakistan also operates in a mixed
economy as the Pakistani economy is a mix of public corporations and private firms. Mcdonalds
however works in the private sector.
Market Structure
McDonalds can be rightly called a firm that works in a monopolistically competitive market as it
fulfills the criteria’s of firms that behave like monopolistically competitive firms. This criteria is
as follows:
1) Many sellers, McDonalds has a lot of rival businesses.
2) Product Differentiation is extremely high in this market. Each and every burger producer tries
to make their product both visually appealing and eye catching, as well as quality McDonalds

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competes on the basis of quality with firms like Burger King. Both these companies try to come
out with innovative deals that are extremely cost effective for the consumer. McDonalds works
on brand power.
3) Ease of entry as there are relatively low barriers to entry and exit in the fast food market. It is
very common to see new food joints opening up and closing within six months or a year. This is
the sole reason why sole owners started opening up local burger chains like Burger Shack.
4) Firms compete on price. This can be proven as each and every fast food chain offers similar
prices with a minimum of 400 rupees. Fast food joints like McDonald’s offer numerous deals
daily and other firms follow.
5) Extensive advertising and distribution outlets. McDonalds promotes its products both on the
internet and off the internet on billboards, posters, magazines and newspapers. Throughout
Karachi, McDonalds always has one branch with a drive thru in every area, from Defence to
Nazimabad to Malir Cantt.
Objectives of the Firm
Corporate Objectives:
McDonalds Pakistan corporate objective is to deliver their best and to satisfy their customers by
keeping up with their standards. They want to provide quality food and giving people friendly and
healthy environment. They care about their shareholders and always look forward to maximize
their return. They want their customers to feel comfortable by giving them top-notch service.
Marketing Objectives:
Marketing targets are goals established with a business when promoting its products to potential
people that should be performed within confirmed time frame. A company's marketing aims for a
specific product might include increasing product recognition among targeted consumers,
providing information about product features and lowering consumer resistance to purchasing the

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product. McDonalds divides their marketing objectives to long-term and short term goals and
regularly analyze it to see whether the goals are being achieved or not. After developing the
objectives, plans are made on how to attain them. It is known as Marketing Strategy. It shows that
what actions and resources will be required and how they will work together.
Long Term Objectives:
McDonald’s vision is to become best in the world. Their long-term objective is to develop quick
service experience for customer ease. They want to maintain the quality of their food as their whole
company relies customer satisfaction. Over the time, people are experiencing different taste.
McDonalds wants to improve their menu and include all time of flavors and cuisines in their
updated menu. Though having a lot of popularity, they still want to market themselves by
increasing sales through promotion. As Don Thomson himself said that “While the near-term
environment is challenging, we are confident in our ability to create long-term value for our
customers, shareholders and the McDonalds system.’’
Determinants of Demand
1. Change in the price of related goods
McDonalds being the famous fast food chain, has enormous substitutes which can
influence the overall demand of McDonalds. Substitutes like KFC, Hardees, Burger
King, Johnny Rockets, OPTP, Fat Burger and local famous food chains like, Mr.Burger,
Burger Inc, Burger Lab, Wall Street Burgers, Burger Cage and Smashed Burgers, can
easily replace McDonald’s if McDonald’s raises its price or drops its quality.
Now the main matter is how these all substitutes influence the demand of
McDonald’s, if these substitutes for any matter, decrease their price then the demand for
McDonalds will ultimately decrease. The reason being absolute that, everyone will prefer
those other food chains because they are offering a similar meal at fewer prices. On the

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contrast, if these substitutes are increasing the prices, then demand for McDonald’s will
rise. Hence McDonald’s either charges competitive prices or lower than its rival products.
2. Change in taste of customers.
Customers are the king, as they are the ones who influence the market highly. A change
in a customer’s needs means that, customers preferences have been changed .Those
changes can be either favorable or unfavorable. For instance, many new medical
researches have shown that, consuming McDonalds more than necessary can be
detrimental for health. This will have a negative effect on customers and health conscious
customers will prefer not to eat McDonalds which can cause a drastic fall in demand on
McDonald’s food. Furthermore, the demand can rise to certain level, if customers receive
some good news regarding McDonalds. For instance, McDonalds has started a new
scheme in which, with every burger they offer free gifts. Many customers will get
attracted to this offer, increasing the demand of McDonalds. Happy meals – an incentive
for children to pester their parents to buy them McDonalds for a toy, no other burger
chain does that in Pakistan. Hence McDonald’s is very popular in minors.
3. Change in the income of customers.
Income is one of the major factors which impact a lot on the customer demands.
McDonalds is one of those fast food chains which everyone can’t afford especially in a
developing economy like Pakistan. Customers, who have low incomes, will not prefer
McDonalds, instead of that customers with high incomes will demand more for it. It
proves that income has direct relationship with demand in McDonald’s case.
4. Number of customers.

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Increase in the number of customers, will also increase the demand for McDonalds. If
there is fall in the number of customers, the demand will fall ultimately.
5. Services and quality
.
Happy customers are loyal customers. McDonalds can increase its demand by making the
customers happy with its services and the quality of food it’s providing. For instance, the
time McDonalds takes to serve its customers should be relatively short to satisfy its
customers and they are known for their quick service. For home deliveries, Mcdonald’s
delivers in exact 30 minutes. McDonald’s is the one of the only chains in Karachi that has
a state of the art Drive Thru system for all types of orders. Furthermore, McDonald’s is
one of the few chains in Karachi that works on a 24 hour system. Another point that
makes McDonald’s approachable for the consumers is that not only does it have its own
delivery service, it has also collaborated with vendors like ‘Food Panda’ and ‘Delivery
Chacha’ for home deliveries. Additionally the quality of food is hygienic and taste is
maintained in order to upsurge the demand. They give tours of their kitchen also, one can
contact them for a free tour of any kitchen’s branch to develop a system of openness and
trust between them and their consumer.
6. Advertisements.
An advertisement can attract many new customers and henceforth can cause an increase
in the demand. The effective advertisement of McDonalds is one of their core expertise,
the food chain has revealed the whole process of making McDonalds food in their
advertisements, which seems to more appealing to customers. Furthermore, McDonald’s
has created creative jingles throughout its period and its number is very easy to remember
as due to repetitive advertising everyone in Karachi remembers how their delivery

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number stands for their famous burger’s name “Big
Mac” and how one can remember it through the creative
song they made for people to remember their famous
number 111244622. Whenever someone says phrases
like “Im lovin it” or uses red color and talks about
clowns, one can easily associate the slogans with
McDonald’s, the red color with the logo and clowns to the famous mascot McDonald’s
has, Ronald McDonald. McDonald’s is a brand everyone knows about and that is one of
their competencies.
Determinants of Supply
1. Price of inputs.
Inputs like meat, dairy products, beverages, vegetables and buns. These are the main
important inputs to produce the McDonalds food. Additionally, other premises like,
franchises buildings and vehicles for transporting raw materials and ingredients as
well as for delivery, these also are counted as the inputs for production. Increase in
the prices of inputs can relatively decrease supply as McDonald’s would find it more
expensive to make its meals impacting its profitability.
2. Technology
Installation of new technology can increase the supply substantially. New machines
and technologies can be used to increase the production of McDonald’s food and also
it can be a useful factor for time saving. Machines and stoves to make French fries,
and burgers, ice-cream machines, coffee machines, beverage dispensers and freezers

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are all part of technology. Furthermore, McDonald’s needs to keep reviewing and
updating its software’s that it uses for its counters and in the kitchen for keeping track
of orders and inventory. Since these software’s are highly internal one can just
assume that they are expensive and the more the branches, the more of them are
required adding to McDonald’s cost and impacting on how big a scale to operate on.
3. Government policies
Government policies on price regulations and taxes can have a huge influence on the
supply of McDonald’s food. Currently McDonald’s has to adjust its prices according
to the percentage of General Sales Tax of 17 % on all its meals and items. Whenever
the next government comes this percentage can change. Hence new menus with
updated prices will have to be set. Moreover, taxes can be on raw materials too,
which will add to the cost of McDonald’s ingredients. Since McDonalds is a
franchise, it imports its ingredients like beef and chicken from all over the world from
places like China. The price McDonald’s Pakistan gets its beef and chicken from will
depend on the exchange rate of the rupee and China’s currency. Additionally, changes
in import policies can also impact on McDonald’s supply. For example if a quota is
set on the imports of food items from outside Pakistan, McDonald’s supply of items
like patties will get affected negatively and it will reduce.

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Nature of Product
Labelling McDonald’s to be an inferior good is purely subjective according to the economy it
functions in and the standard of living of the people. for e.g. in the US McDonalds would be
considered an inferior as people there would much likely want to spend money on expensive
restaurants if they had an increase in their income, but in Pakistan, the standard of living is not that
high since it’s a developing economy and only a specific class of people can afford McDonalds,
making it a relatively premium product. Pakistanis have more options for inferior goods such as
a bun kabab or chicken rolls which are much cheaper so in Pakistan, McDonald’s would be
considered a normal good as only the people who have relatively higher income than the average
people in the economy can afford McDonald’s. However, in cases where the upper middle class
starts to earn higher incomes, McDonalds will become an inferior good for them as those
individuals will move on to more premium brands. Hence the nature of the product varies from
individual to individual.

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Consumer Segmentation
Customer segmentation is the practice of dividing a customer base into groups of individuals that
are similar in specific ways relevant to marketing, such as age, gender, interests and spending
habits.
For, McDonalds, segmentation, targeting and positioning is one of the integral components of its
marketing strategy. Segmentation involves dividing population into groups according to certain
characteristics, whereas targeting implies choosing specific groups identified as a result of
segmentation to sell products. Positioning refers to the selection of the marketing mix the most
suitable for the target customer segment. McDonald’s uses adaptive type of product positioning
and accordingly, the company is engaged in periodical re-positioning of products and services
according to changes in the segment.
McDonalds segments its customers according to the life-cycle stage and then positions itself as a
family friendly low cost restaurant.

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The following table is an example of how McDonald’s segments its market in Pakistan and the
other countries it operates in:

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Factors of Production Employed By McDonalds
Phase 1: Production
During the production phase at McDonalds, food is produced to be sold to customers. Potatoes
grown for French fries, the oil that fries all of the food, and cows for burgers (and the grass/grains
they eat) are all examples of land resources that are produced and needed for the production of the
food. Employees that work in the factories to do things such as form patties according to the
Islamic standards in Pakistan, the cooks that prepare the food inside the restaurant, and farmers
that grow potatoes or raise animals are all examples of labor. The factories in which the food is
produced, conveyor belts inside the factories, and grills/fryers inside the restaurant are examples
of physical capital. This is because they provide a place for the food to be produced (factory), they
make it easier to produce mass numbers of food (conveyor belts), and they cook the food so it can
be eaten (grills/fryers).
Four Factors of Production employed in Phase 1 are:
Land: Natural resources that are used to make goods and services
Labor: The effort that people devote to a task for which they are paid
Capital Resources: Any human-made resource that is used to create other goods and services such
as the machinery mentioned and the fryers, grillers and conveyor belts used.
Enterprise: Combining land, labor, and capital to create and sell goods or services for a profit.
Phase 2: Packaging
During the packaging phase, food is packaged to be sold. Cardboard, paper bags, and water are all
land resources used during this step. The cardboard and paper comes from trees (lots of the paper
packaging is from recycled materials), and the water helps run the machines that automatically
package the food. People who work in the factories to package the food, people who drive the
packaging (like to-go bags) to each location, and employees who package each food item before

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it is given to the customer are all examples of labor. This is because they all put forth effort to
ensure that the food is packaged. Lastly, items like tape, a packaging factory, and machines that
automatically package the food before it is shipped to a restaurant are examples of physical capital
because they make it easier for all of the items to be packaged. The vehicles used to transport
items are part of capital invested by McDonalds.
Phase 3: Distribution
During the third phase, distribution, the food is distributed to both restaurants and customers. Many
natural resources are utilized during this phase, like gasoline to power the delivery trucks to each
location, ice to keep the food cold and fresh while it's being distributed to a restaurant from a
factory, and water because McDonalds coffee beans come from Central and South American
countries via ship. Labor comes into play when people have jobs to drive and distribute the food
to each location to the customers, and when employees distribute the food to paying customers
when their order is completed. Labor also is evident when celebrities, like the famous cricketer
Shahid Afridi, endorse McDonalds so the amount of food they sell (distribute out) is greater.
Capital resources during this phase include things like cash registers, order machines with screens,
inventory systems etc. so the kitchen knows what food to make that will be eventually be served
to the customers.

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Labor Required for Operations by McDonald’s
Karachi
The labour market refers to the supply of and demand for labour, in which employees provide
the supply and employers the demand.
At McDonalds, labour is specialized to carry out various tasks that ease its production channel.
Specialization or division of labour occurs when workers are assigned specific tasks within a
production process. As workers provide less training to be efficient workers, this leads to an
increase in labour productivity and gives rise to economies of scale, which means higher output
contributes to lower costs.
McDonalds makes sure it works more efficiently and provide fast food services fast. Just like
any restaurant, McDonalds hires cashiers, cooks, managers and even trainee managers to
contribute their skills in the productivity of the restaurant.
Cashiers are those who take responsibility for the payments and receipts. So in order to hire a
person in that post, one must possess a basic accounting background and know the required
techniques of calculations. They should be quick with calculations so that least time is wasted
while paying back customers and taking money from them. They should be good listeners with a
coherent speaking style and adopt well customer interaction skills. At least three people are to be
hired.
There are many people working in different areas of a restaurant, especially in the kitchen.
Cooks that will be required should know the art, the craft and the technology of preparing food
of a particular restaurant. They should inherit a basic understanding of cooking, temperature and
resource requirement. The cook is expected to follow a laid down recipe which is central to the
food preparation process of the restaurant to ensure uniformity. Then the cook presents his or her
prepared food to the sous chef, who examines and sees whether the food is in line with the
restaurants standards. The cooks must prepare food very fast according to the laid down rules of
the company.

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Anyone who is hired as a manager at McDonalds must be keen in handling customer and
worker problems. The managers have the prime duty to plan, organize, lead and control all
available resources and allocate them so they are in the best interest of the organization. The
planning objective is to outline the common goals, the organizing objective is to build strong
harmonious relationships among employees and employers, leading objective is organize all
activities to ensure effective and efficient productivity and controlling objective is to measure
and monitor company resources. Strategic plan and goals need to be monitored constantly to
ensure they assist the company to meet its goals. Managers need to provide missing items in case
of shortages and adhere to the needs of the workers as well as customers. They need to make
sure that employees do their job by being controlling and cooperative when needed.
Trainee managers need to be logical thinkers, have a great attitude, and be tenacious,
energetic and hardworking. While on the job, they need to enjoy the thriving, busy and friendly
environment. Suitable candidates must possess good communication and strong follow up skills.
They should know the basic of computer operations. They should be graduates in order to apply
for this position.

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DEMAND SCHEDULE AND THE DEMAND
CURVE
Demand is the willingness and ability to buy a good or service at any given price over a period of
time.
Many fast food chains such as McDonalds in this case have captured the attention of many food
lovers around Pakistan, with its well-built brand image across the globe and the quality of their
food. When franchises like McDonalds enter Pakistan, they provide exquisite quality in their
food products and a delightful environment, but however slowly and gradually, they eventually
lose out on both for several reasons.

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DECREASE IN DEMAND FOR MCDONALDS:-
There are numerous ways in which McDonalds can lose its customers, hence lose potential
demand in the country. For example, if McDonalds sells a McFlurry in one of its branches, it is
not necessary that the quality and quantity of the product would be equal, hence there is lack of
consistency. There could be an increase in unemployment in Pakistan, due to which an average
Pakistani would switch to cheaper fast food outlets. This could decrease McDonald’s market
share as customers would be switching to substitutes like Red Apple, for example. Also, it
possible that there had been an overall increase in the prices of meals at McDonald’s due to
rising cost of raw material. As resources are expensive, the meal would cost more, hence causing
the demand for its substitutes, such as Hardees or Burger King, to rise. As there are various news
alerts concerning the health hazards that are caused by eating restaurant food, there could be a
fall in demand as customers have started to become more health conscious. Hence there is a
sufficient increase in fresher and healthier food. Another reason can state that there might be
wide spread rumours about unusual objects found in McDonald’s burgers, fries or drinks. This
psychologically impacts a customer’s choice of preference and it takes a matter of seconds for
people to change their edible preferences in these circumstances. Considering the impact of
foreign franchisors opening their franchises in Pakistan since the past ten years, there has been a
significant decline in the demand for McDonalds due to the bloom of competitive outlets such as
Hardees, Johnny Rockets, Burger King and many more.
INCREASE IN DEMAND OF MCDONALDS:
After highlighting the drawbacks faced by McDonalds due to decreasing demand, the famous
restaurant can be seen in a positive light as well. An increase in demand can take place when
customers’ needs and wants are fulfilled by the restaurant. Provision of promotional events, gift
vouchers and discounts play a vital role in attracting any customer to an organization, even if it is
for a specific period of time. Furthermore, in the case of a minor recession, an average Pakistani
would shift away from fancy high-end restaurants to fast food chains, which in this case,
McDonalds can benefit from this if it imposes lower prices on meals. Another reason can be the

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launch of healthier and low calorie meals for health conscious customers by introducing salad
bowls and protein diets with freshly squeezed juices. Incorporating healthier meals would make
McDonalds stand out as compared to other fast food chains. Customers would prefer McDonalds
as it caters to their needs and is concerned about its customers’ health too.
Diminishing Marginal Utility
Just like the demand schedule above shows how the willingness to pay and demand for a lunch
from McDonalds drops after consuming more units of meals, this is a very common problem.
Consumers being human beings need variety in their lives because of which the marginal utility
after consuming an additional unit of let’s say a quarter pounder meal decreases as the consumer
may simply get ‘bored of the same meal’.
Price Elasticity of Demand
Having mentioned the demand curve and behaviour of McDonald’s demand, one cannot analyse
the demand for McDonald’s meals without analysing the price elasticity of demand of its meals,
or at least, the trend of its elasticity of demand.
Price Elasticity of Demand refers to the responsiveness of quantity demanded to changes in
price. McDonalds is considered price elastic. When demand is elastic, they sell lunch at a lower
price and hence, the change in quantity demanded has a bigger effect on total consumer
expenditure than the change in price.
In the case of McDonalds, the target consumers are young individuals and people belonging to
the working group. Consumers of McDonald’s meals are highly responsive to price changes

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because they are considered as a luxury for the lower working class consumers, yet they can be
seen as an inelastic product for high income consumers as it is seen as a necessity.
Implications of Price Elasticity of Demand on
Revenue Maximization
Companies that focus on maximizing their revenue, are more interested in controlling market
share than the current profit margin of their sales. Having stated that McDonald’s has a relatively
price elastic demand, in order to sell more and maximize on the revenue it earns daily, it should
sell at relatively lower prices, which it sort of does in Karachi as they offer different deals
starting with a minimum price of PKR 200 and regular meals that start from a minimum price of
PKR 500.
EconomicProfit
Since McDonald’s is a private firm that intends on building market share and enjoying good
amounts of profit, it is very obvious that McDonald’s like any other company, focuses more on
its explicit costs, that require outlays of cash, examples include labor costs, rent etc. Chances are
bleak that McDonald’s would check its opportunity costs and try to reduce them, the focus would
always be on monitoring and controlling explicit costs as those have a direct impact on profits.
Opportunity costs (implicit costs) would be considered, but these costs will not be that big a
concern to the management. The economic profit of McDonald’s cannot be determined as it’s an

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item quite internal and no company would like to mention the next best alternatives it forgoes for
a particular alternate as:
1) Decisions have to be taken every day so keeping track of implicit costs requires a separate and
specialized department adding to business costs. (Recruitment, Office space and Trainings.)
2) It is a highly private matter for the firm.

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References
https://www.scribd.com/doc/34273434/Report-on-McDonald-s-Pakistan
https://economicsofmcdonalds.wordpress.com/2012/05/03/how-is-mcdonalds-considered-a-oligopoly/
http://sfactor24.blogspot.com/2013/06/mcdonald.html
https://www.google.com.pk/amp/s/microeconmcd.wordpress.com/2013/10/25/microecono
mics-and-mcdonalds/amp/
https://answers.yahoo.com/question/index?qid=20100717080221AATfAfx
http://christshospitaleconomics.blogspot.com/2012/01/at-last-proof-mcdonalds-is-
inferior.html
http://marketrealist.com/2014/07/must-know-mcdonalds-business-segments/
https://prezi.com/rd4yaxoyw8fs/mcdonalds-factors-of-production/
https://www.mcdonalds.com.pk/
https://www.slideshare.net/gunjankukadiya/production-ppt-of-mcdonald

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