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Economis of scale and scope

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A multiconcept restaurant incorporates two or more restaurants, typically chains, under one roof. Sharing facilities reduces costs of both real estate and labor. The multiconcept restaurants typically offer a limited menu, compared with full-sized, stand-alone restaurants. For example, KMAC operates a combination Kentucky Fried Chicken (KFC)/Taco Bell restaurant. The food preparation areas are separate, while orders are taken at shared point-of-sale (POS) stations. If Taco Bell and KFC share facilities, they reduce fixed costs by 30%; however, sales in joint facilities are 20% lower than sales in two separate facilities.

What do these numbers imply for the decision of when to open a shared facility versus two separate facilities?

Book:

Managerial Economics: A Problem Solving Approach
Authors: Luke M. Froeb and Brian T. McCann
ISBN-13: 978-0-324-35981-7
ISBN-10: 0-324-35981-0

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The decision of when to open a shared facility vs. two separate facility will depend on the magnitude to ...

Solution provided by:
Gaurav Agarwal, MS
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  • BE, Bangalore University, India
  • MS, University of Wisconsin-Madison
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