Question

What are examples of fixed and variable costs in a fast food restaurant? How do you think a firm will be able to maximize their profits if the economy starts to go into a recession?

Answer 1

The fixed costs are those which remain fixed during production process , in other it does not change with the output produced. The variable costs are those changes with the output produced.

The fixed costs of the fast food industry is likely to be the license fees, rent , insurance, fixed assets like refrigerator , utensils , tables.

The variable costs would be the salaries for employees, food, marketing costs, electricity costs, beverages etc...

In a recessionary situation the aggregate demand in the economy will be lo so people now demand less goods and services, so there is a decrease in demand which pulls the prices down. So for the firms to maximize the profit there is only one way that is to minimize the costs, especially the variable costs. Usually firms will fire their workers and minimize the costs to get the profit.