Subway, the fast-food restaurant franchise, came out with a promotion offering two footlong subs for $10 during the early days of the Covid-19 pandemic as a way to drive traffic to its restaurants. Franchise owners were not happy with the promotion, claiming they lost money on every sub sold.

Assume that the costs related to the cost of one Subway footlong sub and the Subway franchisee include the following (assume a selling price of $10/2, or $5):

Assume that all transactions are paid for using a credit card.

Questions to answer

1. Identify each of the listed costs of one footlong sub sandwich as either variable or fixed.
2. What costs and factors do you think should be relevant to the footlong sub sandwich pricing decision? Explain.
3. What is the variable cost of each $10 footlong sub combo sold (remember that the $10 covers two subs)?
4. Do you agree that a Subway franchisee would lose money for two footlong subs sold for $10? Why or why not?