In this project, your group must submit the economic report about the Subway fast-food restaurant that your group opened somewhere last year.

Conditions:

Suppose that your group opened the store last year by paying $15,000 as the initial franchise fee.

You rented a space at the local mall for your startup. In your first year, you were restricted to sell a footlong sandwich at price of $5 (for simplicity of your analysis, assume that you were only offering footlong sandwiches). You were able to sell 76,000 sandwiches in the first year and the below table provides a cost breakdown for your annual volume of sales. It is your responsibility to identify which item belongs to the variable or fixed component of the cost.      

Table 1. Cost Breakdown at Price Level of $5

Type of Expenditures

Cost of Sales - $147,295

Salary-Wages - $80,049

Rent - $26,254

Taxes- $14,750

Interest Paid- $4,135

Amortization & Depreciation - $9,454

Advertising - $8,798

Benefits –Pension - $2,989

General & Administrative

Expenses - $15,000

Total Cost - $308,724

Your report should contain the following items:

1. Analysis of cost, revenue and profit functions at the restricted price level of $5 per sandwich (Don’t forget to include the opportunity cost of the owner(s) in your calculations).

2. Breakeven analysis at the restricted price level. Based on the breakeven analysis discuss the size of the unit contribution margin for your startup.

3. Suppose, the local consulting firm forecasts for you how any price change may impact the volume of sales. You were notified that if you increased the price level to $6 per unit, your sales would drop to 50,000 sandwiches. Derive the linear demand function for your product and include its algebraic form in your report.  

4. Suppose the franchise headquarter allowed you to choose the optimal price and volume of sales based on the linear demand function which you derived based on the local consulting firm’s estimates of the price change. Report your cost, revenue and profit functions using the linear demand function. Support your discussion of these functions with the proper graph(s).

5. Report your optimal price, volume of sales, costs and profit if you had a chance to choose the price. Use the functions which you derived in 4. Discuss how these optimal levels are different from the situation when you were restricted to $5 per sandwich. What is your conclusion?