Question

McDonald’s, Burger King, and Wendy’s all produce hamburgers, among other things. However, if you prefer burgers from McDonald’s, you might consider other burgers an imperfect substitute. With this in mind, which of the following statements would be correct about McDonald’s prices in the short run?

a. McDonald’s will maximize profits by producing where marginal revenue equals marginal cost.
b. McDonald’s will charge a price higher than marginal revenue and marginal cost.
c. McDonald’s will charge a price equal to marginal cost.
d. McDonald’s will set its prices like a perfect competitor.
e. McDonald’s consumers will pay a higher price as long as it is worth the value they place on their preference for McDonald’s burgers.
f. McDonald’s will set its prices like a monopolist.

Answer 1

Answer:

Correct statements about McDonald's price in given scenario are given below.

Explanation:

1. McDonald's will maximize profits by producing where marginal revenue equals marginal cost.

2. McDonald's will charge a price higher than marginal revenue and marginal cost.

3. McDonald's consumer will pay a higher price as long as it is worth value they place on their preference for McDonald's burgers.

4. McDonald's will set it's price like a monopolist.

McDonald's compete in market with two other competitor. Consumer prefer McDonald's burgers and consider other two firms burgers as a imperfect substitute.

In this scenario McDonald's will act like a monopoly in burger market.

Answer 2

Answer:

Correct statements about McDonald's price in given scenario are given below.

Explanation:

1. McDonald's will maximize profits by producing where marginal revenue equals marginal cost.

2. McDonald's will charge a price higher than marginal revenue and marginal cost.

3. McDonald's consumer will pay a higher price as long as it is worth value they place on their preference for McDonald's burgers.

4. McDonald's will set it's price like a monopolist.

McDonald's compete in market with two other competitor. Consumer prefer McDonald's burgers and consider other two firms burgers as a imperfect substitute.

In this scenario McDonald's will act like a monopoly in burger market.