Day 21 The overpriced meal

The overpriced meal

I read an interesting news today; a Chinese hot pot restaurant released a lavish set menu during the new year's day. Which eight courses plus beverages with a total amount of 50,880 CNY. The current exchange rate is 1 AUD equals 5.06 CNY, so the value measured in AUD is 10,055. I prefer to use CNY as the scale in this article for convenience. When the menu was exposed to the public, people were surprised and said no one would ever buy it. Nonetheless, I would like to perform a basic analysis based on this incident with the economist's perspective.

To assess whether the comb was over-priced or not, we need to probe at the supply side of the market. The catering industry is a monopolistic competition market, since the firms have basic control over their prices. And there are many firms that produce slightly variable products. Whose are close substitutes to each others Generally, we assume all sellers in this case is rational and fully interested in maximization their economic profits. As we learned in microeconomics, the profit can be maximized in an imperfect competition market when the marginal revenue equals to marginal costs for producing an additional unit. In this case, we need to define the marginal cost for serving this course menu because the hot pot restaurant has already adjusted the price to achieve the greatest economic profit.(hypothesis of the rational seller) So, what is the marginal cost for the seller? According to the specific explanation in the menu, all foods are selected among the top-quality ingredients, and they would only take the essential part. In addition, the beverages includes the Jinjunmei black tea with sixteen people’s share plus five kilogram of brandy. For concise evaluation, we set the wagyu meat as our valuing indicator, which is one of the most expensive meat around the world. The price of the most prime cut of wagyu is around fifty AUD per kilogram so the marginal cost for the food sector should be 9*50*16 equals 7,200 Australian dollars. The drink sector’s marginal cost is contingent on the price for brandy and the tea. A 700 ml Hennessy VOSP Cognac sold in Dan Murphys is with the price $64.65, so the 5kg brandy should value around $462. Furthermore, the average market price is $400 per kilogram for the best Jinjunmei black tea. Hence the cost occurs from the black tea is 1200 AUD for 16 people. However, the marginal cost should be the sum of all variable costs. Consequently, the labour plus other costs should be recognized. However, the hot pot restaurant does not need a good chief, so the cost is a minority that we tend to ignore in this case. In conclusion, the total marginal cost for producing the set menu course is 8,862 AUD. Although price is always higher than marginal revenue in the monopolistic market, it is still overpriced because our assumptions are based on the highest possible value of the product.

Corresponding to the demand curve of customers, they will demand the product only if the marginal utility derived from the good exceeds the associated costs. It also hinged on the elasticity and real price of the good. In this scenario, the demand curve for the set menu should be elastic, because there are close substitutes and the proportion, this price against their income is relatively high. As a result, people will not try the course, unless there are exterior factors such as vanity or peer influence.