Bradford is a small town that currently has no fast-food restaurants. McDonald's and Burger King are both considering entering this market. Burger King will wait until McDonald's has made its decision before deciding whether to enter. Use the decision tree below to determine the optimal strategy for each company, assuming that the minimum rate of return that owners of fast-food restaurants require on their investment is 15%. McDonald's a. What is the optimal strategy for Burger King? A. Not enter the market. B. Enter the market if McDonald's builds a large store. c. Enter the market whether or not McDonald's builds a small store or a large store. D. Enter the market if McDonald's builds a small store. Enter Rates of return McDonald's 16% BK 16% Burger King Rates of return Large Store Don't Enter McDonald's 25% BK 0% Rates of return Small Enter McDonald's BK 20% Store 20% Burger King Rates of return Don't McDonald's BK Enter 30% 0% b. What is the optimal strategy for McDonald's? OA. Build a small store. B. Build a large store. C. Building either a small store or a large store would be optimal. D. Not build another store.

Bradford is a small town that currently has no fast-food restaurants. McDonald's and Burger King are both considering entering this market. Burger King will wait until McDonald's has made its decision before deciding whether to enter. Use the decision tree below to determine the optimal strategy for each company, assuming that the minimum rate of return that owners of fast-food restaurants require on their investment is 15%. McDonald's a. What is the optimal strategy for Burger King? A. Not enter the market. B. Enter the market if McDonald's builds a large store. c. Enter the market whether or not McDonald's builds a small store or a large store. D. Enter the market if McDonald's builds a small store. Enter Rates of return McDonald's 16% BK 16% Burger King Rates of return Large Store Don't Enter McDonald's 25% BK 0% Rates of return Small Enter McDonald's BK 20% Store 20% Burger King Rates of return Don't McDonald's BK Enter 30% 0% b. What is the optimal strategy for McDonald's? OA. Build a small store. B. Build a large store. C. Building either a small store or a large store would be optimal. D. Not build another store.

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter2: Fundamental Economic Concepts

Section: Chapter Questions

Problem 4E

See similar textbooks

Similar questions

Read the following article, which introduces the concepts of expected value and optimal decision making. Then answer the question that follows. EXPECTED VALUE AND OPTIMAL DECISION MAKING, BY THE APLIA ECONOMICS CONTENT TEAM As an alternative to raising property taxes in order to increase revenue, the village of Port Chester, New York, recently increased parking meter rates by 25% and also raised parking fines. According to an article from the lohud.com news site (Gabriel Rom, "Port Chester Increases Parking Costs, Fines," lohud.com, May 2, 2017), officials are hoping that the increased parking costs will yield an additional $500,000 in revenue for the village. Although in the past drivers may have been more willing to risk parking illegally, the optimal behavior for Port Chester drivers may have changed as the cost of a ticket has risen. Undoubtedly, some motorists will continue to take certain "gambles," perhaps risking a ticket for illegal parking in exchange for the benefit of saved…
Lyft launched its IPO on April 1st 2019 with a share price of $72. Before the IPO, Lyft’s board of directors was likely trying to decide how to compensate CEO Logan Green to provide an incentive for him to increase the firm’s performance and share price after it went public. Let’s say the board was considering two possibilities such that they were deciding between providing one million dollars worth of shares of the firm stock at $72 per share or one million dollars worth of call options with a strike price of $72 and a maturity and vesting date one year after the IPO. To keep things simple, let’s say CEO Logan Green can choose between providing two levels of effort: regular effort or high effort. He has been exerting regular effort all along. He could switch to high effort which would be much more costly for him as he would have to work even longer hours, but the extra effort would likely result in better performance for the firm. The goal of the board’s incentive compensation is to…
Consider a new business that invests $20 million into a plant to manufacture loaves of bread. The market for bread is say around 100 million loaves and the new firm expects that it will be able to obtain a market share of around 5%. At that level of production, the total cost of production is $10 million. Let us say that it targets a 20% return on its investment. What should the price of a loaf of bread be? Use the principle of target rate of return pricing. If the mark-up rate is 10% what will the full-cost price be?
Go to investor.siriusxm.com and check whether Sirius XM’s recent financial reports indicate that its business model is working. Are its subscription fees increasing or declining? Are its revenue stream advertising and equipment sales growing or declining? Does its cost structure allow for acceptable profit margins
Thaler's research shows that "loser" stocks are, in fact, more risky than "winner" stocks true false
An investment club has set a goal of earning 15% on the money it invests in stocks. The members are considering purchasing three possible stocks, with their cost per share (in dollars) and their projected growth per share (in dollars) summarized in the following table. (Let x = computer shares, y = utility shares, and z = retail shares.) Stocks Computer (x) Utility (y) Retail (z) Cost/share 30 44 26 Growth/share 6.00 6.00 2.40 (a) If they have $392,000 to invest, how many shares of each stock should they buy to meet their goal? (If there are infinitely many solutions, express your answers in terms of z as in Example 3.) (x, y, z) = ? (b) If they buy 700 shares of retail stock, how many shares of the other stocks should they buy? computer ? shares utility ? shares What if they buy 1400 shares of retail stock? computer ? shares utility ? shares (c) What is the minimum number of shares of computer stock they should buy?? sharesWhat is the…
What are the strengths of Alibaba Group: The Rise of a Platform Giant?
Please explain the determinants of success for a platform in the following phases: (1) during the startup & growth phase, (2) during the maturity phase. Explain at least one determinant for each phase.
Janine and John share profits of their partnership in the ratio of 2:3. If Janine's share in the profit for last year was P 30,000.00, how much was John's share in the profit of the business?
Julia and Julia is a small, owner-operated bakery. The owner of Julia & Julia is considering two alternative investments, X and Y. There are four possible outcomes for each (1,2,3 and 4 for Investment X and A, B, C, D for Investment Y). Investment X Investment Y Outcome Payoff Payoff Probability 0.2 Outcome Probability 1 A 0.1 2 2 0.2 B 30 0.2 12 0.4 1 0.5 4 14 0.2 14 0.2 (a) To one decimal place (e.g. 3.5), what are the expected values of Investment X and of Investment Y? The expected value of X is The expected value of Y is Say the owner's utility function is given by U (Z) = VZ where U is the utility and Z is X or Y. (b) Is the owner risk averse? O Yes O No (c)Which investment will the owner choose? OInvestment X Investment Y
Discuss the limitations of the dividend share valuation model for well established firms which have been listed on a stock exchange for many years.
“Pareto’s Principles states that there is an optimal solution that cannot be improved upon without disadvantaging at least one group”.Explain?Can you apply this principle in corporate decision-making? Give an appropriate example from the point of view of a corporation.