A pizza company runs its business in a franchisee mode and has decided to conduct a $1promotion for its double cheese supreme pizza. However, the Franchisee Association is unhappyand has filed a lawsuit alleging that the $1 promotion forces the franchisees to sell the pizza withat least a 10-cent loss. The association says that the $1 pizza typically costs at least $1.10 whichincludes about 55 cents for the cost of the meat, pizza base, cheese and toppings. The resttypically covers expenses such as rent, royalties, and worker wages.The pizza company, however, justified the promotion by saying that the $1 double cheese supremepizza will increase restaurant visits by as much as 20 per cent. But industry analysts say that asmuch as half of the gain recorded from increased traffic could be lost because customers arespending less when they ordered food. The Pizza company's franchisees pay a royalty to the company that is typically equal to 4.5% of therevenues of the restaurant.Using your learnings from the managerial economics course, analyze the case and answer thefollowing in detail --• Do you support the idea that the pizza company's franchises are losing money by selling$1 double cheese supreme pizza? What factors need to be considered in making thisdecision?*** are the relevant costs to a franchise for selling a double cheese supreme pizza? (.• Do you think that the goals of the pizza company and the franchises are different? If so, isthere a problem with the misalignment of incentives? Can this be resolved?

The Pizza company's franchisees pay a royalty to the company that is typically equal to 4.5% of the revenues of the restaurant. Using your learnings from the managerial economics course, analyze the case and answer the following in detail -- • Do you support the idea that the pizza company's franchises are losing money by selling $1 double cheese supreme pizza? What factors need to be considered in making this decision? are the relevant costs to a franchise for selling a double cheese supreme pizza? ( • Do you think that the goals of the pizza company and the franchises are different? If so, is there a problem with the misalignment of incentives? Can this be resolved"

The Pizza company's franchisees pay a royalty to the company that is typically equal to 4.5% of the revenues of the restaurant. Using your learnings from the managerial economics course, analyze the case and answer the following in detail -- • Do you support the idea that the pizza company's franchises are losing money by selling $1 double cheese supreme pizza? What factors need to be considered in making this decision? are the relevant costs to a franchise for selling a double cheese supreme pizza? ( • Do you think that the goals of the pizza company and the franchises are different? If so, is there a problem with the misalignment of incentives? Can this be resolved"

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Economics
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