In a Franchise System

question 136

Multiple Choice

In a franchise system,:

• A) the franchisor operates a retail outlet using a name and format developed and supported by the franchisee.
• B) the franchisee pays a lump sum plus a royalty on all sales in return for the right to operate a business in a specific location.
• C) the franschisee has complete control over the store design, products or services sold, management training, and advertising.
• D) franchisors receive all profits that the franchisees generate, and pay franchisees a fixed sum.
• E) franchisees are responsible for advertising, product development, and system development.

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Definitions:

Diminishing Returns

A rule which posits that when investment in a specific sector grows, the profit rate from that investment will not continue to rise past a certain threshold if all other factors are kept unchanged.

AVC

Average Variable Cost is the total variable cost per unit of output.

ATC

Average Total Cost; the per-unit cost of production, calculated by dividing the total cost by the quantity of output produced.

Marginal Output

The additional output that results from increasing the production input by one unit.