Question

C and 2 In two neighboring cities (i anda there are currently y Mcdonalds Franchises. The annual Revenues earned by the the respective cities are determined by number of Franchises located there, according to the following functions R = 1OFA - FA and Rg=20F-4 476 R = Revenue in A Millions F= # of franchises Show How A New Franchisee will make his decision. Which city to locate in if this goal is to maximize his own Revenue CAssumel each franchisee earns the averge. revenue from that city) ises # of Fran Revenue Total franchises Revenue Icity 1. (city 1 1 city city 2 2 1 16 T 83 3 3 1 21 2 24 1 12 tan 24 8 (B) Explain why the Franchisor and Franchisee might agree on the Answer you've determined abovez

Answer 1

Here,

Revenue earned in City 1 initially (i.e. with 2 franchisees) = 16

Revenue earned in City initially (i.e. with 2 franchisees) = 24

Average Revenue earned in City 1 initially (i.e. with 2 franchisees) = 8

Average Revenue earned in City initially (i.e. with 2 franchisees) = 12

The franchise opts for city 2.

b) From the Franchisor 's point of view, he sees that with the entry of the third franchisee:

• In City 1: Total Revenue increases,
• In City 2: Total Revenue remains unchanged.

BUT, both Total and Average Revenue in City 2 remains higher.

The franchisee being rational will opt for city 2 with a higher average income