Microeconomics Project - Consumer

Behaviour (G2)

The business we have chosen for this project is a restaurant called “Ambur Biryani
Hyderabad Biryani”. Biryani is cherished by Indians for its rich, aromatic blend of spices
and tender meat, offering a symphony of flavors that brings people together. Its
versatility allows for regional variations, making it a beloved dish across diverse
communities. Whether enjoyed at festive celebrations or as a comforting meal, biryani
holds a special place in Indian culinary tradition. The popular product of this business is
of-course Biryani. The price for one Biryani is 100 rupees they sell 80 to 90 plates per
day. Their daily revenue is 12000 rupees and per day they make 20 kgs of biryani per
day for which their cost is 6000 rupees.

Links for Questionnaire & Data (Survey Responses & Consumer Surplus Table)

● Survey Link (G2)

● Microeconomics Survey (G2) (Responses)

● Consumer Surplus Table and demand curve (G2)

Target Audience -
Our primary target audience for the biryani includes college students and individuals
within a budget bracket of ₹1,000 to ₹15,000. This group seeks affordable, flavorful
meals, making our offering an ideal choice for their budget and lifestyle.

Factors affecting Consumer Preference-

Age: With the help of our survey we found that biryani is usually consumed by people of
age groups 16-19 and 20-40.
Income level: Our product is preferred by people ranging from lower class to middle
class who have a monthly budget ranging from 1000 to 15000 as compared to others
who have a higher monthly budget and income and prefer to eat biryani from places
which are renowned and trustworthy.
Price: On an average people are willing to spend 140 rupees on a plate of biryani.
Brand and other factors: Most people prefer to buy biryani from well-established and
recognized brands like Nagarjuna, Behrouz, and Meghna's, which are known for their
product. They prioritize factors such as taste, hygiene, and quality , often sticking to
their preferred brands despite the availability of substitutes. Among these factors, taste
is consistently ranked as the top priority.
Discount: The survey indicates that a significant number of people are requesting a 30%
discount on their purchases and the average amount of discount requested is 20%. This
suggests that price sensitivity is a key factor for many consumers, highlighting the
importance of offering competitive pricing or promotional deals to attract and retain
customers.

Factors causing a shift in the demand curve:

Income:
As customer’s income changes, their demand for biryani may also shift. An increase in
income leads to an increase in demand due to it being a normal good. Thus, the demand
curve shifts to the right.

Trends and tastes:

If Biryani becomes trendy or gains popularity due to changing tastes, the demand curve
shifts to the right. Conversely, if another food trend emerges, the demand for biryani
may decrease, shifting it to the left.

Price of related goods:

If the price of substitutes such as Meghana's biryani or Behrouz decreases, the demand
for Ambur biryani may decrease, shifting the curve to the left. On the other hand if the
price of complement increase, the demand for biryani will decrease hence shifting the
demand curve to the left.

Expectations:
If consumers expect future prices to change, it can affect current demand. Positive
expectations shift the demand curve to the right, while negative expectations shift it to
the left.

Population Size and Composition:

An increase in population or changes in demographics can impact the demand. A larger
population generally leads to an increase in demand which leads to the curve to shift to
the right.

Price elasticity:
Actual Price (X)- Rs. 100 (the price at which he sells
Willingness to Pay (Y)- Rs. 300
Quantity Demanded at X- 14
Quantity Demanded at Y- 25
Price Elasticity = Percentage Change in Quantity/Percentage Change in Price
= 25-14/300-100 x 100/14
= 11/200 x 100/14
= 11/28
= 0.3928

Income Elasticity:
Average Income at X= Rs. 6,400
Average Income at Y= Rs. 11,428.57
= Rs. 11,429
Income Elasticity= Percentage Change in Quantity/Percentage Change in Income
= 25-14/11,429-6,400 x 6,400/14
= 11/5,029 x 6400/14
= 0.00218 x 457.142
= 0.99657
Cross-Price Elasticity:
Most preferred substitute- Meghana’s Foods
Price of Meghana’s Biryani- Rs. 300
Cross-Price Elasticity= Percentage Change in the Quantity Demanded of One Good
caused by a 1 Percent Change in the Price of the Other
= 25-14/300-100 x 300/14
= 11/200 x 300/14
= 33/28
= 1.1785
The following is the cost analysis of the business:

Fixed cost :
 Rent - 20,000/ per month
 wages - 9,000/ per month
 vessels - 167/ per month *
 furniture - 291/ per month **
 electricity - 880/ per month

Therefore the Total fixed cost is

20000+9000+167+291+880= 30,338

*vessels cost 8000 and owner assumes it will last for 4 years, therefore the monthly
fixed cost is approx 167

**furniture costs 7000 and owner assumes it will last for 2 years, therefore the monthly
fixed cost is approx 291

Variable cost :
 chicken & masala & vegetable - 30/ per plate
 Rice - 16/ per plate
 oil - 5/ per plate
 Raita & pickle - 4/ per plate
 gas -0.6/ per plate
Therefore for producing very additional one plate of biriyani the business has to occur =
55.6 * X
Total cost :
TC= Fixed cost + Variable cost

The total cost function is:

C(X)= 30,338 + 55.6(x)

There can be additional cost of packaging the biryani which is around Rs. 2.5 but the
biriyani shop costs people extra Rs.5 for the packaging.

To plot the graph we made a table :

Graph of Fixed cost, variable cost, total cost:

To plot the graph we made a table :

Graph of Average cost, Marginal cost, total cost:

Revenue function :

R(x)= 100(x)

Profit Function :

P(x) = 100(X) - [ 30,338 + 55.6(x) ]

P(x) = -30,338 - 44.4(x)

Therefore if we put the profit function equal to the cost function the break even
quantity will be 607 units (approx) of biriyani plates.
Market failures:

1. Information Asymmetry

• Problem: Customers may not know the quality or ingredients of the biryani
they purchase.
• Impact: This could lead to suboptimal purchases or distrust if quality
doesn’t meet expectations.
• Example: A store claims to use premium basmati rice but uses a cheaper
variant instead.

Solutions:
• Transparent Menu Descriptions: Clearly list all ingredients, sourcing information,
and preparation methods on the menu. This builds trust and helps customers make
informed choices.
• Quality Certifications: Obtain and display certifications (e.g., hygiene
standards, organic ingredients) to signal quality to customers.
• Customer Reviews and Testimonials: Encourage satisfied customers to
leave reviews online or in-store. Positive feedback can help mitigate information gaps.
• Staff Training: Ensure that staff are knowledgeable about the menu and
can answer customer questions accurately, enhancing transparency.
• Sampling and Tastings: Offer small samples or tastings of new dishes to
allow customers to assess quality before purchasing.

2. Externalities

• Problem: The store’s activities may generate external costs or benefits not
reflected in its prices.
• Negative Externality: Cooking biryani may release strong smells or smoke,
disturbing nearby residents.
• Positive Externality: The aroma could attract more foot traffic to nearby
businesses, benefitting them without compensation.
Solutions:

• Mitigating Negative Externalities:

• Ventilation Systems: Install efficient ventilation to reduce smoke and
strong odors from affecting nearby areas.
• Waste Management: Implement proper waste disposal and recycling
practices to minimize environmental impact.
• Enhancing Positive Externalities:
• Community Engagement: Collaborate with neighboring businesses for joint
promotions, benefiting all parties involved.
• Aroma Marketing: Use the appealing aroma to attract customers while
ensuring it doesn’t become a nuisance.
• Regulatory Compliance: Adhere to local environmental regulations to
minimize negative externalities and avoid legal repercussions.

3. Monopoly or Market Power

• Problem: If the store is the only one offering a particular style or recipe of
biryani, it may charge higher prices.
• Impact: Lack of competition can lead to higher prices or reduced quality.

Solutions:

• Diversification: Offer unique biryani varieties or complementary dishes to

differentiate from competitors, reducing the likelihood of monopolistic practices.
• Competitive Pricing: Maintain fair pricing strategies to avoid exploiting
market power, fostering healthy competition.
• Collaboration with Suppliers: Build strong relationships with multiple
suppliers to prevent dependency on a single source, enhancing market competitiveness.
• Market Research: Continuously monitor the market to adapt to changing
customer preferences and competitive dynamics.

4. Public Goods Problem

 • Problem: If the store offers free services (like free Wi-Fi or water),
customers may overuse these without contributing fairly.
• Impact: This could lead to congestion or reduced service quality for paying
customers.

Solutions:

• Sustainable Free Services:

• Limit Usage: Implement reasonable usage limits for free services like Wi-Fi
to prevent overuse.
• Cost Recovery: Introduce minimal fees for excessive use to cover
maintenance costs without deterring customers.
• Incentivize Fair Use:
• Membership Programs: Offer premium services for a fee while maintaining
basic free services for all customers.
• Feedback Systems: Encourage customers to report misuse, allowing the
store to manage resources effectively.
• Optimize Offerings: Ensure that free services enhance customer
experience without significantly impacting operational costs.

5. Imperfect Competition

• Problem: The market for biryani stores might have price wars or predatory
pricing practices.
• Impact: New or smaller stores may be driven out of the market, reducing
consumer choice.

Solutions:
 • Sustainable Free Services:
• Limit Usage: Implement reasonable usage limits for free services like Wi-Fi
to prevent overuse.
• Cost Recovery: Introduce minimal fees for excessive use to cover
maintenance costs without deterring customers.
• Incentivize Fair Use:
• Membership Programs: Offer premium services for a fee while maintaining
basic free services for all customers.
• Feedback Systems: Encourage customers to report misuse, allowing the
store to manage resources effectively.
• Optimize Offerings: Ensure that free services enhance customer
experience without significantly impacting operational costs.

6. Adverse Selection

• Problem: If there is no reliable way to signal quality (e.g., through

certifications or reviews), lower-quality stores might dominate.
• Impact: Good quality stores may struggle to differentiate themselves and
lose customers to cheaper, low-quality options.

Solutions:

• Quality Assurance:
• Consistent Standards: Maintain high and consistent quality standards to
build a reliable reputation.
• Third-Party Certifications: Obtain certifications from reputable
organizations to authenticate quality claims.
• Transparent Marketing:
• Honest Advertising: Ensure all marketing materials accurately represent
the product to attract the right customer base.
• Detailed Product Information: Provide comprehensive information about
dishes to help customers make informed choices.
• Customer Feedback Mechanisms:
 • Reviews and Ratings: Encourage customers to leave honest reviews,
allowing others to assess quality before purchasing.
• Responsive Management: Address negative feedback promptly to
maintain trust and differentiate from lower-quality competitors.
• Loyalty Programs: Reward repeat customers with consistent quality,
reducing the risk of attracting only price-sensitive, low-quality-seeking customers.

7. Moral Hazard

• Problem: Once customers prepay for services (like catering), the store may
cut corners on quality or quantity.
• Impact: Customers face the risk of not getting what they expected, and
refund policies might not be clear.

Solutions:

• Clear Contracts and Policies:

• Transparent Terms: Clearly outline expectations, quality standards, and
refund policies for prepayments and catering services.
• Service Guarantees: Offer guarantees or warranties to assure customers of
the quality and reliability of services.
• Performance Monitoring:
• Quality Checks: Implement regular quality inspections to ensure that
standards are maintained, especially for large orders or catering.
• Customer Feedback: Continuously collect and act on customer feedback to
identify and rectify any lapses in service quality.
• Incentive Structures:
• Staff Incentives: Reward employees for maintaining high quality and
customer satisfaction, aligning their interests with business goals.
• Penalties for Non-Compliance: Establish consequences for failing to meet agreed-
upon standards, deterring corner-cutting.
• Insurance and Deposits:
• Secure Transactions: Use secure payment methods that protect both the
store and the customer, reducing the risk of disputes over prepayments.
8. Inefficiencies in Resource Allocation

• Problem: The store might overproduce biryani that goes unsold, leading to
food waste, or underproduce during peak hours, losing sales.
• Impact: This creates inefficiencies in labor, ingredients, and utilities,
affecting profitability and customer satisfaction.

Solutions:

• Demand Forecasting:
• Data Analysis: Use sales data and market trends to predict demand,
adjusting production levels accordingly.
• Flexible Staffing: Implement flexible staffing schedules to match peak and
off-peak hours, optimizing labor costs.
• Inventory Management:
• Just-In-Time Inventory: Order ingredients based on projected sales to
minimize waste and reduce holding costs.
• Regular Audits: Conduct regular inventory audits to track usage patterns
and adjust procurement strategies.
• Waste Reduction Practices:
• Portion Control: Standardize portion sizes to ensure consistency and
reduce food waste.
• Recycling and Composting: Implement recycling and composting programs
for unavoidable waste, minimizing environmental impact.
• Operational Efficiency:
• Streamlined Processes: Optimize kitchen workflows to enhance
productivity and reduce preparation time.
• Energy Efficiency: Invest in energy-efficient appliances to lower utility
costs and reduce resource wastage.
• Dynamic Pricing:
• Adjust Prices: Implement dynamic pricing strategies during peak and off-
peak hours to balance supply and demand effectively.
 • Customer Relationship Management (CRM):
• Engage Customers: Use CRM systems to understand customer preferences
and tailor offerings, ensuring that production aligns with demand.