Economic Principals underlying Kannur Cafe

Kannur Café in Madival Street

Madival street is a famous street in Bangalore where there are several Kerala food joints, “Kannur Café” is one of them.

Five Economic principals associated with the same are: -

1)Economies of scope – Large Scale/Different outputs produced. 

The restaurant offers various options in their menu. The food items produced have common inputs and the diversification leads to cost savings. By this their Average cost is reduced as the Fixed Cost gets distributed by larger and larger amount of output. Hence it costs lesser for the restaurant to produce all the output than what it would have costed for the different restaurants to produce these food items separately. Therefore the restaurant benefits by the reduction in the Average costs through Economies of scope.

2)Economies of agglomeration -  This refers to the reduction in the cost that firms obtain by locating themselves in proximity to each other. Madival Street is famous for the food joints, hence Kannur café easily benefits by being located close to other food joints that are located there – It is easy for them to gather the information about their competitors, hence they can adopt the best practices of their competitor restaurants.

3)Diminishing Marginal Utility – Kannur Café offers Kerala Meals at Rs 100/150 – This offer provides for unlimited rice and side dishes. The restaurant offers such meals on the basis of Diminishing Marginal Utility. As the Marginal Utility of the consumer (for the food) decrease with the consumption of every additional unit – the Resturant benefits and earn profits, on the other hand the consumers remain happy with the meal offers that the restaurant serves.

4)People Respond to incentives – To attract large number of customers the restaurant provides various offers like meals with unlimited repeats, discount during lunch hours, Onam Sadhya with limited rates as compared to the rates of the competitor restaurants there.

5)People face trade off – With the distinctive menu card offered by the Kannur café customers face trade-off for which item to purchase as they get tempted towards all the items displayed within the menu. Therefore, the customers like me end up doing cost benefit analysis and go with the option that provides the maximum net benefit. 

Hence through these economic principals, Kannur Cafe benefits and adds on to its advantage.