Question

core: 0.50 pl 3 of 40 (30 complete) End of Chapter 3.3 Bradloed is a small town that currently has no fast food restaurants McDonalds and Burger King are both considering entering this market Burger King wil wat until McDonald's has made is decision before deciding whether that the minimum rate of return that owners of fastfood restaurants require on the investment is 15% Burger King McDonald a. What is the optimal strategy for Burger King? A Enter the market whether or not McDonald's builds a small store or a large store OB Not enter the market OC. Enter the market McDonald's builds a small store OD. Enter the market McDonald's builds a large store b. What is the optimal strategy for McDonald's? O A Building either a small store or a large store would be optimal O B. Build a small store OC. Not build another store D. Build a large store Click to select your answer and then click Check Answer All parts showing

Answer 1

1. Enter the market whether or not McDonald's builds a small store or large store

Reason: It is dominant strategy for Burger King to enter the market, no matter what McDonald's does.

2. Build a small store

Reason: Going by backward induction, if BK enters the market, it is profitable for McDonald's to build a small store, as it gives higher payoff as compared to building a large store.