A Fast-Food Franchisor Required Its Franchisees to Sell a Certain

question 29

Multiple Choice

A fast-food franchisor required its franchisees to sell a certain type of ice cream and no other. Which of the following would not be a consideration in determining whether this arrangement violates antitrust laws?

• A) The franchisor owns 20 percent of the ice cream company from which it requires its franchises to purchase.
• B) The franchisor's reason for requiring the franchisees to use the specified ice cream is to increase the profits of the franchisor.
• C) The franchisor has all the necessary licenses to operate the restaurant.
• D) The franchisor does not dominate the ice cream market.

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Definitions:

Price Discriminate

The practice of selling the same product or service at different prices to different customers, based on the willingness or ability of the customers to pay.

Marginal Revenue Curve

A graph that shows the change in total revenue resulting from selling one additional unit of a product or service.

Price Discrimination

The strategy of selling the same product at different prices to different groups of consumers, based on their willingness to pay.

Economic Profit

The total revenue of a firm minus its explicit and implicit costs, essentially measuring the excess beyond the break-even point.