A pizza company runs its business in a franchisee mode and has decided to conduct a $1 promotion for its double cheese supreme pizza. However, the Franchisee Association is unhappy and has filed a lawsuit alleging that the $1 promotion forces the franchisees to sell the pizza with at least a 10-cent loss. The association says that the $1 pizza typically costs at least $1.10 which includes about 55 cents for the cost of the meat, pizza base, cheese and toppings. The rest typically covers expenses such as rent, royalties, and worker wages. The pizza company, however, justified the promotion by saying that the $1 double cheese supreme pizza will increase restaurant visits by as much as 20 per cent. But industry analysts say that as much as half of the gain recorded from increased traffic could be lost because customers are spending less when they ordered food.

A pizza company runs its business in a franchisee mode and has decided to conduct a $1 promotion for its double cheese supreme pizza. However, the Franchisee Association is unhappy and has filed a lawsuit alleging that the $1 promotion forces the franchisees to sell the pizza with at least a 10-cent loss. The association says that the $1 pizza typically costs at least $1.10 which includes about 55 cents for the cost of the meat, pizza base, cheese and toppings. The rest typically covers expenses such as rent, royalties, and worker wages. The pizza company, however, justified the promotion by saying that the $1 double cheese supreme pizza will increase restaurant visits by as much as 20 per cent. But industry analysts say that as much as half of the gain recorded from increased traffic could be lost because customers are spending less when they ordered food.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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