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Many fast-food restaurant chains, such as McDonald’s, will occasionally discontinue restaurants in their systems. What are...

Many fast-food restaurant chains, such as McDonald’s, will occasionally discontinue restaurants in their systems. What are some financial considerations in deciding to eliminate a store?

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The running of a McDonald's joint requires some fixed investment such as the store rent and other equipments. These costs are to be borne irrespective of whether production occurs or not. Apart from that the store incurs some variable costs during the production process. As long as the total revenue is greater than the variable costs of the joint, it will keep running even if the total cost is higher than the revenue. This way it can recover the fixed costs of running in the short run. Only when the total revenue becomes less thsn the total variable costs, does it decide to eliminate the store.

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