1. Analyze the fast food industry from the point of view of perfect
competition. Include the concepts of elasticity, utility, costs, and market
structure to explain the prices charged by fast food retailers. Firms
within the fast food industry fall under the market structure of perfect
competition. Market structure is a classification system for the key traits
of a market. The characteristics of perfect competition include: large
number of buyers and sellers, easy entry to and exit from the market,
homogeneous products, and the firm is the price taker. Many fast food
franchises fit all or most of these characteristics. Competition within the
industry as well as market supply and demand conditions set the price of
products sold. For example, when Wendy’s introduced its $.99 value
menu, several other companies implemented the same type of changes
to their menu. The demand for items on Wendy’s value menu was so
high because they were offering the same products as always, but at a
discounted price. This change in market demand basically forced
Wendy’s competition to lower prices of items on their menu, in order to
maintain their share of the market. The previous example illustrates the
elasticity of the fast food industry. Supply and demand set the
equilibrium price for goods offered by franchises within the industry.
Competitors of Wendy’s must accept the prices established by the
consumer demand for the value menu. If consumers didn’t respond so
positively to Wendy’s changes, other firms wouldn’t have had to adjust
prices. On the flip side of this concept, there is no need for franchises to
further reduce prices below the current levels. At the current prices,
firms may sell as much product as they wa ...