Consider the Following Prices from a McDonald's Restaurant: a McDonald's

question 24

Multiple Choice

Consider the following prices from a McDonald's Restaurant: A McDonald's Big Mac value meal consists of a Big Mac sandwich, large Coke, and a large fries. Assume that there is a competitive market for McDonald's food items and that McDonald's sells the Big Mac value meal for $4.59. Does an arbitrage opportunity exists and if so how would you exploit it and how much would you make on one value meal?

• A) Yes, buy a value meal and then sell the Big Mac, Coke, and fries to make arbitrage profit of $0.67.
• B) No, no arbitrage opportunity exists.
• C) Yes, buy a Big Mac, Coke, and fries, then sell a value meal to make arbitrage profit of $1.34.
• D) Yes, buy a Big Mac, Coke, and fries, then sell a value meal to make arbitrage profit of $0.67.

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Definitions:

Output

The quantity of goods or services produced in a given time period.

Total Fixed Costs

The sum of all costs required to produce any level of output that do not change with the quantity produced, such as rent or salaries.

Workers

Individuals engaged in physical or mental activities aimed at producing goods or providing services in exchange for wages.

AVC

Stands for Average Variable Cost, which is the per-unit cost of production excluding fixed costs, changing with the level of output.