Question

During 1993, the Japanese yen appreciated by 11% against the dollar. In response to the lower cost of its main imported ingredients-beef, cheese, potatoes, and wheat for burger buns-McDonald's Japanese affiliate reduced the price on certain set menus. For example, a cheeseburger, soda, and small order of French fries were marked down to ¥410 from ¥530. Suppose the higher yen lowered the cost of ingredients for this meal by ¥30.
a. How much of a volume increase is necessary to justify the price cut from ¥530 to ¥410? Assume that the previous profit margin (contribution to overhead) for this meal was ¥220. What is the implied price elasticity of demand associated with this necessary rise in demand?
b. Suppose sales volume of this meal rises by 60%. What will be the percentage change in McDonald's dollar profit from this meal?
c. What other reasons might McDonald's have had for cutting price besides raising its profits?



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  • CreatedJune 27, 2014
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