9Read the article then answer the questions below Fastfood p

9.—Read the article then answer the questions below. Fast-food price fight: Combo deals center stage New \'bundled offers\' target value-conscious consumers NEW YORK Another price fight is breaking out among the country\'s biggest burger chains, this time with meal combos designed to make people forget about the once ubiquitous dollar menus. The new \"bundled offers\" show how hungry McDonald\'s, Burger King and Wendy\'s are to win over deal seekers, and how quickly a popular idea gets copied in the fast-food industry. The latest trend on the value front popped up in late 2015 after Wendy\'s rolled out a \"4 for $4 deal,\" which includes a Jr. Bacon Cheeseburger, chicken nuggets, small fries and a small drink. This week, Burger King followed with a similar \"5 for $4\" deal, and McDonald\'s introduced a \"McPick 2 for $2\" deal to kick off the new year. \"People look at what other folks are doing, and if they think they\'re getting traction, they say we need to do a version of that,\" said Tony Pace, former chief marketing officer at Subway who now runs a marketing consulting firm. Though typically not big profit generators, promotional deals can steer people in the door who might not have stopped in otherwise. The additional food tacked onto those bundled orders helps drive up sales as well. That\'s what happened when Burger King tested its \"5 for $4\" deal in recent months, said Alex Macedo, who heads the chain\'s North America business. \"We believe it\'s going to be very profitable for franchisees,\" Macedo said in a phone interview. The new deals come after fastfood chains struggled to raise prices on value menus without scaring off customers, even as commodity costs rise. McDonald\'s shifted from its hugely popular Dollar Menu to a \"Dollar Menu and More\" that featured a range of prices. Steve Easterbrook, who took over as CEO this past March, conceded the company\'s failure to come up with an adequate replacement for the Dollar Menu has hurt sales. For now, McDonald\'s said the \"McPick 2 for $2\" will run for five weeks, and that the details of the McPick offer will evolve over time. Burger King and Wendy\'s haven\'t said when their limited-time offers will end. A. Name the market structure that typically has price wars. (4 pts) © 2017 Joanne Spitz B. Explain why this market structure has a kinked demand curve. (8pts) © 2017 Joanne Spitz 10. Jo quit her job at Umass where she earned $85,000 a year. She cashed in $200,000 in corporate bonds that earned 3% interest annually to set up a gym. Jo has decided to buy a store front and set up exercise classes. There are 800 people who will pay $1000 a year for unlimited classes; $700 from each person goes for instructors, maintenance, equipment, insurance, depreciation etc. Write your answers to the following questions on the answer sheet. © 2017 Joanne Spitz A. What are Jo’s total revenues? (3 pts) B. What are Jo’s explicit costs? In numbers (3 pts) C. What is her accounting profit? Numbers (3 pts) D. List 2 important implicit costs that Jo has not included. ( in numbers 3 pts) E. What is Jo’s pure economic profit (loss)numbers? (3 pts

Solution

Answer 9:

A. The market structure that has price wars in Oligopolistic market structure. In Oligopoly, the decision taken by a firm in the market is dependent on the decision taken by other firms in the market. Thus, strategic decision making plays an important role in Oligopoly type of market structure.

B. This market structure has kinked demand curve because fall in the prices is immediately responded by another firms by falling prices while firms in this industry do not respond to the price hike by another firm. This leads to difference in elasticity of the demand curve and thus there is kink in the demand curve.