Sunday, September 29, 2019
Economics of All You Can Eat Buffets
The notion of paying one set cost for Ã¢â¬Ëunlimited' quantities of a good or service is certainly appealing, and that appeal is exactly what all-you-can-eat (AYCE) restaurants take advantage of. Gobi Brighton, an all-you-can-eat barbeque restaurant in England, offers unlimited servings of Asian and Middle-eastern foods for one fixed price of 12 pounds. Of course, no customer will actually eat an infinite quantity.Taking this factor into account, and given the various costs the restaurant must pay to deliver the service, this fixed price that consumers pay is determined such that the restaurant will profit in the long-run despite the quantity customers individually eat. Andy and George, however, two middle-aged men who frequently visit this AYCE restaurant, were recently kicked out and banned from Gobi Brighton because, according to the manager of the restaurant, they were Ã¢â¬Å"[eating] the restaurant out of businessÃ¢â¬ (Dartford 2012).While it is certainly possible that busi ness may not be so great for Gobi Brighton these days, whether two customers can be blamed for it or not is another question. This paper will analyze the economic principles of AYCE restaurants and determine if it was possible for Andy and George to have been actually eating Gobi Brighton Ã¢â¬Å"out of businessÃ¢â¬ with their appetite for Asian and Middle-eastern food. Buffets, or AYCE restaurants, can be very profitable because costs paid by the restaurant are much lower compared to those of an a la carte restaurant.Customers are given plates and head to the food counters to get whatever they like instead of ordering from a menu. Consequently, these restaurants have little need for waiters, and thus have less demand for them compared to other restaurants. Furthermore, because food is prepared in large quantities at a time as opposed to being prepared non-stop and on-demand, there is also a lower demand for cooks. On the other hand, buffets require continuous upkeep to ensure foo d safety and presentable aesthetics.Overall though, labour costs for AYCE restaurants are much lower compared to those of other restaurants. Because buffets have reduced production costs, they can afford to charge less to consumers if it means getting more business. Some restaurants use this strategy, but most choose not to because it doesn't lead to profit-maximizing results. Instead, AYCE restaurants take advantage of the law of diminishing marginal utility and how it plays a key role in any customer's ability to consume at a buffet.The manager knows that each additional plate of food provides less utility, or less satisfaction, than the one before. As a result, most people will eat only until the utility derived from an additional serving of food is slightly lower than the utility gained from the first dish. Buffets generate a profit by charging a price which is above the price of the food that the average customer consumes. This strategy assumes that, before the customer consume s a quantity of food where the total cost to the firm is greater than the price of the buffet, their marginal utility will be zero.This expectation was not met in the case of Andy and George. People who go to buffets usually fall into one of two categories of AYCE customers. One group eats regular portions and does one, maybe two trips to the buffet station. These customers are unlikely to eat a value equal to or above the fixed price they paid for the buffet, and thus contribute the most to the accounting profits of AYCE restaurants. The second group of buffet customers consist of over-eaters. They enter a buffet with the intention of getting their value's worth, if not more, of food.These customers are usually familiar buffets and their own capacity for food, and are confident heading into the restaurant because they are certain that they are getting a good deal. These kinds of buffet customers are more likely to consume a quantity of food that is of greater value that of the buff et price. It is here that we find Andy and George, the two over-eaters that were eating Gobi Brighton out of business. After Andy and George paid their 12 pounds, they sat down and each downed five bowls of stir fry before getting kicked out.If the manager was being honest when he said these two customers were putting him out of business, that would mean that those five bowls of stir fry caused the restaurant to go from making accounting profits, where revenue exceeds production cost, to making no profits whatsoever, where revenue equals production cost. Is it possible for ten bowls of stir fry to put this restaurant out of business? One bowl of stir fry these days never costs more than 5 pounds to the producer (Taste 2011).Since Andy and George collectively consumed ten bowls of stir fry, we can assume that up until they were kicked out of the restaurant, the business of the two men cost the restaurant fifty pounds. Beforehand, they each paid 12 pounds for the buffet service, so th e restaurant received 24 pounds as revenue. Consequently, without taking other production costs into account, Gobi Brighton was making a negative accounting profit of 26 pounds. This means that before Andy and George even entered the restaurant, Gobi Brighton was at least 26 pounds away from being unable to sustain its own service.If Gobi Brighton was a perfectly competitive firm in a perfectly competitive industry, then the restaurant has little say in the price because they take whatever price is established by the market equilibrium, and this would explain the poor business (see Figure 1). Raising the price, even by a little, would result in the customers going elsewhere and they would lose all their sales, as shown in point A. Lowering the price to point B, would also be ineffective because they can only sell as much as they can produce, which is a fixed quantity.They would lose even more capital, especially for a buffet service where, theoretically, an infinite quantity of food is being offered. Thus, in a perfectly competitive industry, Gobi Brighton would be forced to continue selling their buffet service at a market price of 12 pounds. Perfect competition could explain how Gobi Brighton was going out of business because of these two men, and thus had to resort to kicking the men out of the restaurant. The fact is, however, that Gobi Brighton is far from being a perfectly competitive firm in a perfectly competitive industry.Buffet prices are not fixed, not all buffets are the same, and buyers and sellers do not have complete information about service. In fact, according to Yelp, Asian and Middle-eastern restaurants are not that common in England, so the restaurant could have raised it's price for a short while, or tried reducing costs by laying off a worker or two since business was clearly not doing so well to begin with (Yelp 2012). Gobi Brighton is an all-you-can-eat restaurant located in Brighton, England that recently kicked out two customers for e ating too much and claimed they were putting the restaurant out of business.Not only does common buffet pricing strategies suggest it is very unlikely that two over-eating customers alone could do this, but Gobi Brighton could have improved business a number of ways since it isn't a perfectly competitive firm. Perhaps instead of marketing itself as an all-you-can-eat restaurant, Gobi Brighton may want to consider switching to an a la carte service, especially if they feel like their business is threatened by the very demographic that buffet restaurants appeal to most.