Answer to 1 (a):

McDonald's clientele varies according to several factors, one of which being location. These
consumers can be loosely divided into cohorts or groups according to socioeconomic
characteristics, such as income and preference, which translate into similar WTP at different
price points. Put differently, the price elasticity of demand that McDonald's experiences may
vary depending on the socioeconomic category. McDonald's Australia currently uses a third-
degree pricing strategy, which implies that if a certain socioeconomic group has high
elasticity, McDonald's will have a lower price markup and vice versa.
People from comparable socioeconomic classes tend to live in similar locations, therefore
grouping people based on location is a great approach to segregate them based on
socioeconomic variables.

Answer to 1 (b):
McDonald's would encounter a poor price elasticity of demand for their products in low-
income areas. This results in inelastic demand since low-income populations have few
options for reasonably priced fast food that they can grab on the run. In these cases,
McDonald's markup would be significantly higher, as shown by the calculation below, and as
a result, it would fetch a higher price in these low-income areas.