KFC Price

KFC can’t set the price too low, or it would lose money. It also can’t set the price too high. What would happen if KFC tried to charge, say, €100 for an order of chicken? Common sense tells you that no one would buy it at that price. Now you understand that the challenge of pricing is to find a balance: KFC needs to set the price high enough to earn a good profit on each order sold but not so high that it drives away too many customers. In general, there is a trade-off: as the price increases, each piece sold brings in more revenue, but fewer pieces are sold. Managers need to understand this trade-off between price and quantity, which economists call demand. It depends on many things, most of which are beyond the manager’s control. These include the income of potential customers, the prices charged in alternative restaurants nearby, the number of people who think that going to KFC is a cool thing to do, and so on. The simple transaction between the customer and the restaurant was therefore the outcome of many economic choices. You can see other examples of economics as you look around you— for example, you might know that the workers earn relatively low wages; indeed, they may very well be earning minimum wage. Across the street, however, you see a very different kind of establishment: a fancy restaurant. The chef there is also preparing food for customers, but he undoubtedly earns a much higher wage than KFC cooks. Before studying economics, you would have found it hard to explain why two cooks should earn such different amounts. Now you notice that most of the workers at KFC are young— possibly students trying to earn a few euros a month to help support them through college. They do not have years of experience, and they have not spent years studying the art of cooking. The chef across the street, however, has chosen to invest years of his life training and acquiring specialized skills and, as a result, earns a much higher wage. The well-heeled customers leaving that restaurant are likewise much richer than those around you at KFC. You could probably eat for a week at KFC for the price of one meal at that restaurant. Again, you used to be puzzled about why there are such disparities of income and wealth in society—why some people can afford to pay €200 for one meal while others can barely afford the prices at KFC. Your study of economics has revealed that there are many causes: some people are rich because, like the skilled chef, they have abilities, education, and experience that allow them to command high wages. Others are rich because of luck, such as those born of wealthy parents. Everything we have discussed in this section—the production process, pricing decisions, purchase decisions, and the employment and career choices of firms and workers—are examples of what we study in the part of economics called microeconomics. Microeconomics is about the behavior of individuals and firms. It is also about how these individuals and firms interact with each other through markets, as they do when KFC hires a worker or when a customer buys a piece of fried chicken. When you sit in a fast-food restaurant and look around you, you can see microeconomic decisions everywhere.