Explain why a firm may hire managers to operate outlets near the firm's headquarters, but may sell franchise rights for the outlets located greater distances from the headquarters
(With a franchise, the firm sells a brand name and a method of doing business to someone who then owns and operates the outlet.)
To avoid moral hazard problems, the firm must monitor the managers of the outlets. The firm can cost-effectively monitor operations near the headquarters. However, the cost of monitoring rises the farther away the outlet is located. Thus, the firm may earn more profit by franchising the outlets located far from the headquarters instead of trying to monitor them.
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If the price is less that the firm’s AVC, the firm’s output
A. is determined by the relationship between MC and AVC. B. will drop to zero. C. will change to where MC = ATC. D. will increase to where P = AC.
Which of the following would be considered a "leisure" activity by economists?
A. Mopping the floor at McDonald's for minimum wage B. Mopping your kitchen floor C. Folding sweaters while working at the Gap D. None of these activities would be considered leisure.
All of the following describes Nazi Germany's economic system, except that
A. the ownership of land, labor and capital was in private hands. B. it was highly nationalistic with much of its production directed toward military goods and services. C. the government dictated what was to be produced. D. a major goal was to redistribute income from the wealthy and the middle class to the poor.
The ceteris paribus assumption is important in economics because
A. all empirical data are equal. B. models are always complex and require as many variables as possible. C. economic data move very slowly over time and so they can always be considered constant. D. it would be impossible to relate the changes in one variable to another variable without holding other variables constant.