Microeconomics 101

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Making the Business
The Italian Oven Restaurant

• Microeconomics 101
• Presented By
• Jenn Hosler, Andy Komar, Nick Retos, Ben Musial

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Contents of Presentation

• Introduction - Ben
• Resources  Land, Labor, Capital, Human Capital -
  Ben
• Corporation - Ben
• Opportunity Costs - Nick
• Supply and Demand - Nick

• Elasticity of demand on food Andy
• Location - Andy
• Technology - Andy
• Substitutes - Jenn
• Accounting Profit - Jenn
• Advertisement - Jenn

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Introduction to The Italian Oven

• The Italian Oven Restaurant was founded by Jim
  Frye of Ligoneer, Pennsylvania in March of 1989.
• He formulated the concepts and recipes of The
  Italian Oven in the basement of his house.
• The first restaurant was founded in Somerset,
  Pennsylvania and soon grew to 110 restaurants in
  the period of about 6 years.
• The restaurant reached 17 states and Australia.

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• Named fastest growing restaurant in 1992 by the
  almanac of food service distribution
• Food combines fine Italian food and more
  famously, gourmet pizza made from a wood fired
  oven
• The nationally acclaimed kids menu was hand drawn
  by 7 year old A.J Frye, Jim Fryes oldest child.
• Fryes main point was to make The Italian Oven a
  family oriented restaurant with reasonable prices
  and delicious food
• Prices were kept low to attract all class levels

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Resources

• Land- The physical space on which production
  occurs, and the natural resources that come with
  it.
• Labor- The time human beings spend producing
  goods and services.
• Capital- Long-lasting tools used in producing
  goods and services.
• Human Capital- The skills and training of the
  labor force.

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Resources Needed to Conduct an Ordinary Business
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How do these apply to The Italian Oven?

• Land- in order to start building a restaurant, a
  site must be picked by the developers.
• In most cases, The Italian Oven rented a site
  from an owner rather then build a new facility.
  The idea behind this motive is that the
  surrounding businesses will attract customers.
• Labor- a workforce is needed to upkeep and run
  the restaurant.
• Capital- money is needed to keep the business
  operational, and turn a profit that makes it
  worthwhile.
• Human Capital- schooling for chefs as well as on
  the job training for waiters.

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The Italian Oven is a Corporation

• A corporation is a firm owned by those who buy
  shares of stock and whose liability is limited to
  the amount of their investment in the firm.

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What are the opportunity costs of running an
Italian Oven restaurant?

• An opportunity cost is what is given up when
  making a choice or taking action.
• Capital invested could have been used for other
  ventures.
• The time that put into establishing the business
  could be used for many other things.
• The building that the business is in could have
  been rented for a profit.

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Supply and Demand

• When looking at any aspect of a business, we try
  to find an equilibrium point where supply and
  demand meet.
• For instance, supply and demand curves were used
  to determine the price of pizza at the Italian
  Oven

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Using the demand curveDetermining the Amount of
pizzas sold per hour (hypothetical)
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Table showing the number of pizzas made based on
the number of employees making pizza
(hypothetical)
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Elasticity of demand on various foods served at
the restaurant

• A PRICE ELASTICITY OF DEMAND TELLS US
• The percentage change in quantity demanded caused
  by a 1-percent rise in price as we move along a
  demand curve from one point to another.
• -For example, in Washington, PA, the demand for
  Italian food would be more elastic than other
  foods due to the large population of Italians in
  the city.

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Italian food is also more elastic under the
following circumstances
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Picking the location is crucial to attracting
business

• Restaurants tend to target areas based on
  wealth, traffic, population, and if consumers are
  willing and able to pay for good quality Italian
  food.
• - Jefferson Avenue in Washington or, any street
  with heavy traffic would be a good example of this

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Technology

• -A set of methods a firm can use to turn
  inputs into outputs-
• Computers and easier methods to ring in food
• New use of Coastercalls
• Fax and E-mail to-go orders

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Substitutes

• Are goods that can be used in place of some other
  good and that fulfills more or less the same
  purpose.
• Substitutes for the Italian Oven
• -Papa Johns Pizza
• -Pizza Hut
• -Olive Garden
• -Bravo

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Accounting Profit

• Does a firm make or break after calculating its
  accounting profit?
• TOTAL REVENUE ACCOUNTING COSTS ACCOUTNING
  PROFIT

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Examples of Accounting Costs

• Raw materials- ovens, land, initial price of food
• Wages and salaries- amount each laborer recieves
• Electricity and Phone- cost of utilities
• Advertising cost- Newspapers, TV commercials,
  etc.

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Advertisement

• Local TV and billboards would be the most
  productive form of advertisement for The Italian
  Oven
• Advertising should target a broad spectrum
  people.
• The perfect amount to spend on advertising would
  be a small amount of the restaurants profits, but
  steadily attracts customers.