Starbucks - Behavioral and Fixed Costs

This section focuses on the behavior of costs in both the short and long-run, factors that influence costs, and the impact of costs as seen in associated trends. Costs in general impact the nature in which Starbucks approaches daily business decisions. Costs for example may impact the amount of workers a manager can hire, the ability to hire at competitive wages, the budget for advertising, and the ability to purchase high-end supplies. While there are certain components where there are no substitutes, such as specific ingredients to a particular recipe, costs---either at the upper or lower end of affordability---will affect positively/negatively the manner in which firms conduct business.

Managers will incur short-run costs through both fixed and variable inputs. While managers will be stuck with existing levels of fixed inputs, managers have the flexibility to determine how best to use variable inputs. The firm is ultimately competing with itself to establish its business. New Starbucks establishments are able to leverage the Starbucks brand to attract customers to its stores. Starbucks' licensed stores in the United States as of October 2011 totaled nearly 4100 and claims to have had nearly 8000 in operation worldwide. Starbucks, which continues to expand with company-operated and licensed establishments, faces immediate startup costs that are fixed inputs. Those costs include purchasing inventory, consultation fees, partnership agreements, technology costs, office supplies, and wages that will need to be covered by overhead until the business opens. Additional fixed costs for Starbucks include leasing or owning operating space, warehouses for storage, and distribution centers. Once the Starbucks establishment is ready to open, managers in the short-run will be able to adjust variable inputs to meet market demand. This includes hiring additional employees to the workforce or purchasing additional inventory.

Managers in the long-run do not face the same fixed costs as observed in the short-run. In the long-run, all costs are variable because managers are able to adjust the levels of all inputs. This could include changing the size of the Starbucks operating space, altering methods of production, or increasing/decreasing the number of laborers. Managers in the long-run are able to maximize profit by achieving higher levels of output. More effective production processes can explain increased output, or increased numbers of coffee products served per day for Starbucks. As corporate Starbucks determines that increased net income supports the option to open additional stores, or invest in new markets, Starbucks will produce at a lower long-run average cost, known as economies of scale.

Starbucks' investment in expansion is evident by