Asked by Lyndon Baines on Sep 24, 2024
Verified
The owner of the local "Fatty Foods" chain of restaurants is thinking about retiring.He has two options: he can hire salaried managers for his stores or franchise them to local entrepreneurs.If the owner believes that there are high costs to monitoring the stores after he retires,what should he do?
A) Let the stores stay company stores
B) Sell them off as franchises
C) Shut down the business completely
D) Never retire
Monitoring Costs
Expenses associated with overseeing and controlling business operations or transactions to ensure compliance and efficiency.
Salaried Managers
Managers who are compensated with a fixed salary rather than hourly wages, regardless of the number of hours worked.
Franchise
A business model where a company (franchisor) allows an individual (franchisee) to operate a location using its brand, systems, and support in exchange for fees.
- Comprehend the fundamental concepts of franchising and its advantages in comparison to corporate-owned establishments.
- Analyze the implications of agency problems such as adverse selection and moral hazard in business operations.
Verified Answer
SG
Simran Gugnani2 days ago
Final Answer :
B
Explanation :
By selling off the stores as franchises, the owner can transfer the costs of monitoring to the local entrepreneurs who will be responsible for the day-to-day operations of the stores. This will allow the owner to retire without worrying about the high costs of monitoring the stores. Additionally, the franchisees will have a vested interest in making the stores profitable, which may lead to better performance and increased revenues for the owner if he retains some ownership in the franchises.
Learning Objectives
- Comprehend the fundamental concepts of franchising and its advantages in comparison to corporate-owned establishments.
- Analyze the implications of agency problems such as adverse selection and moral hazard in business operations.