Assume That Burger King, a Fast Food Chain, Enters into a Franchise

question 40

Multiple Choice

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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