Assume that Burger King, a fast food chain, enters into a franchise agreement. The royalty paid to Burger King by the franchisee is calculated as a percentage of the franchisee's revenue. Given that the franchisee faces a downward-sloping demand curve, which of the following is likely to be true? a) The franchisee's revenue-maximizing output will be greater than its profit-maximizing putput. b) To maximize revenue, Burger King will want the franchisee to produce at the level where cotal revenue is positive but falling. c) The franchisee will produce at the level where the slope of the total revenue curve is zero in order to maximize profits.

Assume that Burger King, a fast food chain, enters into a franchise agreement. The royalty paid to Burger King by the franchisee is calculated as a percentage of the franchisee's revenue. Given that the franchisee faces a downward-sloping demand curve, which of the following is likely to be true? a) The franchisee's revenue-maximizing output will be greater than its profit-maximizing putput. b) To maximize revenue, Burger King will want the franchisee to produce at the level where cotal revenue is positive but falling. c) The franchisee will produce at the level where the slope of the total revenue curve is zero in order to maximize profits.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Pick the correct answer and explain in steps

Assume that Burger King, a fast food chain, enters into a franchise agreement. The royalty
paid to Burger King by the franchisee is calculated as a percentage of the franchisee's
revenue. Given that the franchisee faces a downward-sloping demand curve, which of the
following is likely to be true?
a) The franchisee's revenue-maximizing output will be greater than its profit-maximizing
output.
b) To maximize revenue, Burger King will want the franchisee to produce at the level where
total revenue is positive but falling.
c) The franchisee will produce at the level where the slope of the total revenue curve is zero
in order to maximize profits.
d) The profit-maximizing level of output for the franchisee will be at the level where
marginal revenue is less than marginal cost.
e) To maximize revenue, Burger King will want the franchisee to produce at the level where
marginal revenue equals marginal cost.

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