Economics of Fast Food Industry

This assignment delves into the economic principles governing the fast food industry. It examines topics such as oligopoly, price discrimination, cost structures (fixed and variable), and the impact of price floors and ceilings. The analysis also considers price elasticity and real-world examples from companies like McDonald's and KFC, highlighting their strategies in a competitive market.

PART A
a.
b. The equilibrium is where demand equals supply. At this point P= 5 and Q= 24.
c. shown in table and diagram below:
P QD QS
new
QD
8 12 36 16
7 16 32 20
6 20 28 24
5 24 24 28
4 28 20 32
3 32 16 36
2 36 12 40
1 40 8 44
(Econ.ohio-state.edu, n.d.) (Tutor2u.net, n.d.) (Economoicshelp.org, n.d.)
d. As shown the new equilibrium is where P= 5.5 and Q = 26.
Q2. As shown the equilibrium is at P= rental = 1200 and Q= 400. A ceiling is imposed
when it is felt that the price is ‘too high’. This means that for an effective ceiling it must be
below equilibrium. The price of $1000 is effective as it is lower than $1200.

(Heffernan, 2015)At P= 1000 we see that there is excess demand or SHORTAGE. People
want Q1 number of houses on rent but owners are willing to give out only Q2 number. As
Q1> Q2 we have more demand than supply.
As a result some people will go without rented homes= Q1-Q2 . This group is worse off with
ceiling. Those who manage to get a house on rent will be happy as they pay $100 only rather
than $1200 earlier.
Q3.
The theory of the firm, taught in Microeconomics, gives us the parameters used to segregate
different market forms. These parameters include:
 the number of agents/firms in the market,
 extent of government interference (dailytelegraph.com.au, 2016) (Econport.org,
n.d.)through rules, fines, the ease of entry and exit,
 degree of cooperation (formal or informal) among firms,
 nature of the good – homogeneous or heterogeneous due to product differentiation.
‘The interaction and differences between these aspects allow for the existence of
several market structures’ (Policonomics.com n.d.).We have perfect competition at
one end, and monopoly, at the other extremes of the spectrum of market structures. In
between them we have oligopoly and monopolistic competition.
The firms given to us resemble an oligopoly structure for the following reasons.
The market is dominated by a few players- Mc Donalds, KFC, Subway, Dominos
Pizza, Hungry Jack. The share of McDonald's was highest at 15.2%, ‘followed by

Subway (29 per cent), KFC (23 per cent), Hungry Jack's (16 per cent), Domino's
Pizza (11 per cent)’.
This shows that the market is dominated by a few players as revealed in the shares
above. Also there is intense competition to launch newer products that attract
attention of the customer. Various variants of a simple item like a burger hint at the
importance of product differentiation in this industry. For example, Dominos works
hard on price and convenience platform, while McDonalds struggles to keep a healthy
menu. Its ‘make –your-burger’ offer was meant to cater to all tastes , instead of
standard item offerings only.
There is a high degree of dependence of firms on each other as they tend to upstart
each other continuously. This shows that a new product is quickly reacted to by other
firms.
Q4
Q TFC TVC TC AFC AVC ATC MC
0 210 0 210
1 210 20 230 210 20 230 20
2 210 30 240 105 15 120 10
3 210 50 260 70 16.67 86.67 20
4 210 90 300 52.5 22.50 75.00 40
5 210 170 380 42 34.00 76.00 80
6 210 330 540 35 55.00 90.00 160
7 210 650 860 30 92.86 122.86 320
The table is based on the formula:

TC= TVC+TFC
ATC=TC/Q
AFC= TFC/Q
AVC= TVC/Q