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Under the terms of the current contractual agreement, Burger Queen (BQ) is entitled to 20 percent of the revenue earned by each of its franchises. BQ’s best-selling item is the Slopper (it slops out of the bun). BQ supplies the ingredients for the Slopper (bun, mystery meat, etc.) at cost to the franchise. The franchisee’s average cost per Slopper (including ingredients, labor cost, and so on) is $.80. At a particular franchise restaurant, weekly demand for Sloppers is given by P 3.00 Q/800. a. If BQ sets the price and weekly sales quantity of Sloppers, what quantity and price would it set? How much does BQ receive? What is the franchisee’s net profit? b. Suppose the franchise owner sets the price and sales quantity. What price and quantity will the owner set? (Hint: Remember that the owner keeps only $.80 of each extra dollar of revenue earned.) How does the total profit earned by the two parties compare to their total profit in part (a)? c. Now, suppose BQ and an individual franchise owner enter into an agreement in which BQ is entitled to a share of the franchisee’s profit. Will profit sharing remove the conflict between BQ and the franchise operator? Under profit sharing, what will be the price and quantity of Sloppers? (Does the exact split of the profit affect your answer? Explain briefly.) What is the resulting total profit? d. Profit sharing is not widely practiced in the franchise business. What are its disadvantages relative to revenue sharing?
Why are firms are attracted to foreign markets, for example, to increase profits and revenues and to gain access to cheaper manufacturing. How may this affect the domestic country of the firm?
Some economists argue that unemployment is largely voluntary and other say it is largely involuntary. Pick a point of view and argue for it. Feel free to use real examples for your answer, be sure to address the other side as well, that is not only w..
Suppose the demand for oranges in the U.S. is: P = 5.35 - .012 Q. Where Q is the quantity demanded for oranges in the U.S. (measured in millions of boxes per year) and P is the price per box.
Last year a very severe ice storm hit the north counties of New York state, and the states of Vermont and Maine. Electric poles were down and no one had power for days. It was reported that the price of kerosene heaters skyrocketed and the number pur..
Suppose the European Union (EU) is investigating a proposed merger between two of the largest distillers of premium Scotch liquor. Based on some economists definition of the relevant market, the two firms proposing to merge enjoyed a combined market ..
You are employed as an economic consultant to the regional planning office of a large metropolitan area, and your task is to estimate the demand for hospital services in the area. Use this information to project the impact of the following changes on..
Suppose there are two types of shirts available to Carl: red shirts and black shirts Carl is always willing to exchange three black shirts for one red shirt. What type of preferences is mike exhibiting? Are Carl's preferences monotonic? How do you kn..
What happens to the aggregate quantity demanded in nominal terms over this interval? Using the formula for price elasticity of demand what is the elasticity of aggregate demand over this interval?
A project has an initial cost of $140,000 and an estimated salvage value after 16years of$80,000. Estimated average annual receipts are $26,000. Estimated average annual disbursements are $16,000. Assuming that annual receipts and disbursement will b..
The Solow Growth Model. In 2010, Japan was a large open economy with perfect capital mobility that was at its steady state.
For each level of output except zero output, calculate the average variable cost, average total cost and average fixed cost.
Discuss this week's objectives with your team. Include the topics you feel comfortable with, any topics you struggled with, and how the topics relate to your field.
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