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Pricing in absence of an arbitrage opportunity

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Consider the following prices from a McDonalds Restaurant:

Big mac sandwich $2.99
Large coke $1.39
Large Fry $1.09

A McDonalds Big Mac value meal consists of a Big Mac sandwich, large Coke, and a large fry. Assuming that there is a competitive market for McDonalds food items, at what price must a Big Mac value meal sell to insure the absence of an arbitrage opportunity and uphold the law of one price

1. $4.08
2. $4.38
3. $5.47
4. $5.77.

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Solution Summary

Solution depicts the steps to find out the price of a Big Mac value meal in the given case.

Solution provided by:
Lokesh Jain, MSc
Education
  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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