Purchasing a franchise provides access to an established company's brand name. It also means that franchisees can
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Purchasing a franchise provides access to an established company's brand name. It also means that franchisees can benefit from brand promotion. Accordingly, franchisees are typically required to pay an advertising fee, which may be fixed or a percentage of sales to the franchisor who then spends the funds on advertising programs for the benefit of the entire franchise. If the franchise fee is set at \(2 \%\) of each franchisee's sales and it is estimated that marginal revenue for the franchisees increases by \(3 \%\) as a result of the collective advertising, is the franchisor advertising optimally? Explain your answer.
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