Ryan, Ashri, Zarul and I (Aaron) have been assigned with an assignment which requires us working

together to think and sell like a fast food restaurant. It took us quite awhile to think up of something
unique and creative to sell during the Economics Day. Initially, we came up with an amazing idea of
making our own fusion food which we call it Milk Tea Float. It took us quite awhile to come out with
this idea because a lot of fast food or even cafes have come out with a lot of fusion food. So, we are
basically trying to produce something that has not been thought of yet.

We emphasize and tried to work around our main idea which is the Milk Tea Float. We even came up
with ideas like selling milk tea, ice cream and ice cream with bread. The idea is to sell a variety of food
and beverage to increase our chance of gaining more profit. Before selling our food and beverage, we
had to try out a lot of ingredients ourselves. Our milk tea is home made and we had to find the perfect
sflavor ice cream for our milk tea float. We tried a variety of ice cream flavors such as strawberry,
chocolate, vanilla and etc. In the end, we finally made our decision and went with Nestle’s vanilla ice
cream. We felt that this specific brand ice cream has better texture and flavor to it, and it pairs with
our milk tea float perfectly. The ice cream itself was amazing on itself and so we decided to sell it on
its own too. For our ice cream and bread, we felt that using one flavor of ice cream will not be enough
to buy satisfy our customer’s cravings. That is why we decided to buy Nestle’s Neapolitan ice cream
that comes with strawberry, chocolate and vanilla flavor. It gives our customers more choices by
catering to their preferences.

The market structure of a fast-food restaurant is monopolistic. Monopolistic competition is a

market structure which combines elements of monopoly and competitive markets (Pettinger,
2018). One of the reasons why fast-food joints are considered as a monopolistic market
structure is because its characteristics matches this type of market structure. Firstly, there
are barriers to entry in the market. These barriers might come in a form of licensing and
patents that allows a restaurant to operate their business or space for the restaurant to run
the business. In the fast-food business, there will be a lot of competitions as firms offers a
similar but not identical products. For example, our fast food restaurant sells the same
product as our competitors (Baskin Robbins and Haagen-Dazs) but they are not identical.
Our restaurant serves Milk Tea Floats whereas Haagen-Dazs serves Milkshake Floats. With
different products that are produced, this will lead to firms setting their own market price.
As each restaurant offers a wide choice in differentiated products, fast-food
restaurants have a slight degree of monopoly power in controlling their brand which makes
them the price makers. By having a slight difference in their products, they can influence the
price so the firm can maximize their profits. In this market structure, the demand curve
moves downwards as demand is highly elastic in monopolistic competition (Chappelow,
2019). As demand is highly elastic, firms must think before they act. For instance, by rising
their prices will cause consumers to change preference to another restaurant as
monopolistic market structure has a large number of substitutes. In this market structure,
knowledge about the product between the consumer and producer is imperfect as there is
hidden knowledge between the two parties.

In the short run, firms may gain either abnormal profit, normal profit, subnormal
profits or even loss (Riley, 2018). In order to compete and operate in the market, firms need
to gain abnormal or normal profit as firms can cover the cost of production. However, if a firm
earns subnormal profit in the short run, they are still capable to run the business as they are
able to cover the average variable cost of production.
 The shutdown point for a fast-food restaurant in the short run is when the average revenue
is less than the average cost and below the average variable cost. In this situation, a firm
will lose more money when it produces goods than if it does not produce goods at all.
Producing a lower output would only add to the financial losses, so a complete shutdown is
required (Lumenlearning.com).
However, in the long run, firms will only gain normal profits from their operations. The
reason behind this is because, new firms started to enter the market. Abnormal profits gain
by firms in the short run has attracted new firms to compete in the market. With this, all
abnormal profits gain a firm previously will be gone.

As new firms start to enter the market, they will take some of the customers away from the
existing firms. Therefore, demand will start to fall. This will lead to the demand curve shifting
to the left. If a firm is making a loss in the long run, they have to shut down their business.
This is because they are unable to cover the economic loss in the long run.

From the facts stated above, this leads to the question whether monopolistic is an
efficient market structure. Marginal benefits will exceed marginal loss and underproduction
will create deadweight loss, therefore monopolistic market structure is inefficient. Consumer
surplus will decrease as consumers lose partly by getting less than what they have paid for
(Lumenlearning.com). There are arguments whether monopolistic competition is favourable
or not. Due to the differentiation of products, it creates diversity, choice and utility for the
consumers to choose. In addition, they are also dynamically efficient as they will find new
ways to innovate in terms of new production processes or new products. However, in this
competition it also creates unnecessary waste such as advertising as it is more informative
than persuasive. To finish it off, at profit maximization it is still inefficient due to its
imperfection in market knowledge.

Advertising is a marketing communication method which involves paying for space to promote a
product, service, or cause. The goal of advertising is to reach people who are most likely to be willing
to pay for a company’s products or services and to persuade them to buy it. (Shopify 2016) Advertising
also plays a crucial role in the success of a fast food restaurant, and it can be done through many
methods, such as segmentation, branding, consumer research, test marketing, and targeting.

Advertising is important in the fast food restaurant market, as it Improves the brand name and image
of the company to the target market. (Mack 2015) Advertising would refresh the brand in the minds
of the consumers, while raising awareness about the brand and its image at the same time. In addition
to that, advertising can also reinforce the brand’s message and their vision and mission statements,
which would reassure the customers that they are being prioritised, and the restaurant is constantly
trying to improve themselves. It can also act to inform their potential customers about the brand and
the menu they offer, so that the potential customers would make considerations about dining in the
fast food restaurant. This in turn would help in the spreading of word of mouth and attract further
number of customers.

Advertising can also help the restaurant to stay competitive. There is lots of competition in the fast
food market, and fast food restaurants must constantly advertise their products to make sure they
can attract the greatest number of customers to stay ahead of their competitors. (Mack 2015) If the
restaurant doesn’t establish enough presence in the market, consumers may assume that the lack of
advertising may mean that they are less successful or competitive than their competitors and may
have lesser choices and quality available. This would result in consumers deciding to eat in their
competitors instead.

Advertising can be beneficial to the society, as advertisements often come with special offers and
promotions. This gives the consumers a chance to get their food at a special and cheaper price, and
allows them to buy certain items on promotion, that previously may have been too expensive for them.
This also makes the consumers aware of products that they may have not known before and would
provide them a wider range of fast food choices to satisfy their wants and needs.

Advertising would also create more job opportunities and job diversities; (Samiksha 2012) for example,
it would create more job opportunities for actors, directors, editors, and producers. The income of
these people would increase, which in turn improves the standard of living in the country. This would
help boost the country’s economy significantly, as every company would require advertising.

However, advertising also has its downsides. Fast food is generally categorized as unhealthy (Despres
2016), and as the fast food companies advertise their products, they are promoting an unhealthy
lifestyle. The consumers will blindly eat the fast food because of the temptation and craving created
by the advertisement, without knowing the harm consuming these meals would do to their body in
the long term. Apart from that, advertisements also clutter and bombard our lives with endless
messages. Outdoor signboards can distract us from driving, and website adverts can affect our web
browsing experience, which may cause the loss of focus while performing a task. (Brookins 2019)
Moreover, most of these advertisements aren’t even related or suited to the user, making it a
frustrating experience while trying to read an article or watch a YouTube video.

To a certain extent, advertising cannot create demand, and instead, it creates awareness. For example,
no amount of advertising would make a person without diabetes to buy diabetes medicine, but instead
will raise awareness about preventing and avoiding diabetes. However, if a person with diabetes isn’t
aware of the diabetes medicine, the advertisement could help make the person aware of the medicine,
thus making him buy it. The demand of the medicine is there because there are people with diabetes,
not because of the advertisement. Thus, we can say that advertising is a driving factor to help create
awareness about a product, which in turn creates and increases demand. (Elizabeth 2014)

Besides advertising, there are other marketing strategies that a business should use for
reaching prospective consumers and turning them into customers of the product or service the
business provides. A marketing strategy that our business uses is celebrity endorsement. Celebrity
endorsement means that we hire influencers and entertainers to promote our products. It forms the
relationship between the brand and the celebrity. Hiring the right celebrity or influencer is the key
to attract customers towards the brand and product.

There are a couple of advantages that celebrity endorsement will bring to the brand and
company. An advantage of celebrity endorsement is it will create a good image for the business.
Having an A-List celebrity advertising and supporting your products will give the business a major
boost in terms of sales and marketing of the company. Hiring celebrities will also make the business
more recognised and will give a good impression to the public. Another advantage that celebrity
endorsement provides is attract customers that support the celebrity. A famous celebrity that has
loyal and die-hard fans will be able to influence their fans to try the products that their promoting.
This will attract more customers to the business and will also increase the profits of the business.

However, celebrity endorsement also has its disadvantages. A disadvantage of celebrity

endorsement is it is costly in paying the celebrities. The bigger or famous the celebrity, most likely it
will be more expensive for the company to pay and harder to acquire for their advertising. Another
disadvantage for celebrity endorsement is the celebrities may overshadow the brand. Customers
that come and try the products might only come due to the influence of their favourite celebrities.
This will only benefit the business for a certain period and the performance will then decrease again
because of the decreasing amount of customers.

Besides celebrity endorsement, another marketing strategy that our business implements is
sales and promotions. Sales and promotions can be done in many ways. Sales can be done according
to the festive period. For example, during the Christmas season or Chinese New Year, our business
will carry out sales. As during this period the amount of sales will increase due to the festive period.

An advantage that sales and promotions provide is it will entice customers. During sales,
discounts and price reductions will be able attract customers to buy our products. This will also be
able to attract new customers as the prices that we offer will be appealing to them. Hopefully, with
the increase in customers the business profits will also increase. Another advantage of sales and
promotions is upselling and cross selling products. This can be done in the form of selling the
products in sets and combos. For example, a cup of Teh ice float is RM4 and an Ice cream bun is also
worth RM4. A combo selling these products will be valued at RM6. This will be attracting the
customers as they believe its is value for money and cheaper to buy the products in a combo rather
than buying it in the form of ala carte.

However, the disadvantages of sales and promotions is it limits the revenue. Selling the products at a
reduced price will limit the total revenue gained. This is because the value of the product is higher to
what the business is selling it for in the sets and combos. Another disadvantage is changing customers
price perceptions. By doing sales, the price of products will change and make the customers aware
that they should buy the products during festive seasons or during certain occasions as they prices
offered are lower than the usual prices. Having the right marketing strategy is essential role in making
sure the business is on the right path to attracting new customers. Marketing strategies should be
fundamentally rooted in a company’s value proposition, which summarizes the competitive advantage
a business holds over a rival business.

REFERENCE LIST:

Brookins, M. (2019) Disadvantages of online advertising options. Available at:

https://smallbusiness.chron.com/disadvantages-online-advertising-options-10212.html. (Accessed :
5 November 2019)

Chappelow, J. (2019) ‘Monopolistic competition’ Available at:

https://www.investopedia.com/terms/m/monopolisticmarket.asp
(Accessed: 6 November 2019)

Despres, C. (2016) 13 effects of fast food on the human body. Available at: https://salud-
america.org/13-effects-of-fast-food/. Accessed: 4 November 2019

Elizabeth (2014) Does advertising create demand. Available at: https://thedsmgroup.com/advertising-

create-demand/ (Accessed: 1 November 2019)

Lumenlearning.com (n.d) ‘Monopolistic competition’ Available at:

https://courses.lumenlearning.com/boundless-economics/chapter/monopolistic-competition/
(Accessed: 6 November 2019)
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https://courses.lumenlearning.com/boundless-economics/chapter/production-decisions-in-
perfect-competition/
(Accessed: 6 November 2019)

Mack, S. (2015) Importance of advertising for a restaurant. Available at:

https://smallbusiness.chron.com/importance-advertising-restaurant-67044.html (Accessed at: 2
November 2019)

Pettinger, T. (2019) ‘Monopolistic competition – definition, diagram and examples’ Available

at: https://www.economicshelp.org/blog/311/markets/monopolistic-competition/
(Accessed: 6 November 2019)

Riley, G. (2018) ‘Monopolistic competition’ Available at:

https://www.tutor2u.net/economics/reference/monopolistic-competition
(Accessed: 6 November 2019)

Samiksha, S. (2012) 5 main benefits of Advertising to society. Available at:

http://www.yourarticlelibrary.com/advertising/5-main-benefits-of-advertising-to-society/1106
(Accessed : 3 November 2019)

Shopify (2016) Advertising. Available at: https://www.shopify.com/encyclopedia/advertising

( Accessed at: 28 October 2019)