CEE_594_Problem_set_4_rev.07

# CEE_594_Problem_set_4_rev.07 - CEE 594/ECNS 494 Problem...

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CEE 594/ECNS. 494 Problem Set #4 (Due Friday, November 30 in Lab) 1. Briefly describe, as the inventor of a new consumer product, what the key attributes are of each of the following four market structures that are important for identifying the market environment in which you will be operating. a. Monopoly b. Perfect Competition c. Monopolistic Competition d. Oligopoly 2. Under the terms of the current contractual agreement, Burger Queen (BQ) is entitled to 20 percent of the revenue earned by each of its franchises. BQ's best-selling item is the Slopper (it slops out of the bun). BQ supplies the ingredients for the Slopper (bun, meat, etc.) at cost to the franchise. The franchisee's average cost per Slopper (including ingredients, labor cost, and so on) is \$.80. At a particular franchise restaurant, weekly demand for Sloppers is giveli by P = 3.00 - Q/800. a. If BQ sets the price and weekly sales quantity of Sloppers, what quantity and price would it set? How much does BQ receive? What is the franchisee's net profit? b. Suppose the franchise owner sets the price and sales quantity. What price and quantity will the owner set? How does the total profit earned by the two parties compare to their total profit in part a? c. Now, suppose BQ and an individual franchise owner enter into an agreement in which BQ is entitled to a share of the franchisee's profit. Will profit sharing remove the conflict between BQ and the franchise operator? Under profit sharing, what will be the price and quantity of Sloppers? (Does the exact split of the profit affect your answer? Explain briefly.) What is the resulting total profit? d.

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## This note was uploaded on 03/29/2009 for the course CEE 5940 taught by Professor Schuler during the Fall '07 term at Cornell.

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CEE_594_Problem_set_4_rev.07 - CEE 594/ECNS 494 Problem...

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