Use the table for the question(s)below.
Consider the following prices from a McDonald's Restaurant:
-A McDonald's Big Mac Extra Value Meal® consists of a Big Mac Sandwich,Large Coke,and a Large Fry.Assuming that there is a competitive market for McDonald's food items,at what price must a Big Mac value meal sell to ensure the absence of an arbitrage opportunity and uphold the law of one price?
A)$4.08
B)$4.38
C)$5.47
D)$5.77

Question

Use the table for the question(s)below.
Consider the following prices from a McDonald's Restaurant: 
-A McDonald's Big Mac Extra Value Meal® consists of a Big Mac Sandwich,Large Coke,and a Large Fry.Assuming that there is a competitive market for McDonald's food items,at what price must a Big Mac value meal sell to ensure the absence of an arbitrage opportunity and uphold the law of one price?
A)$4.08 
B)$4.38 
C)$5.47 
D)$5.77

Quizplus · Accepted Answer

To ensure the absence of an arbitrage opportunity and uphold the law of one price, the price of a Big Mac value meal should be equal to the sum of the prices of a Big Mac sandwich, large Coke, and large fry. 
$3.99 (Big Mac sandwich) + $1.89 (large Coke) + $1.89 (large fry) = $7.77 
Therefore, the correct answer is C) $5.47, which is the only option that is closest to the calculated sum of prices.

Use the Table for the Question(s)below