Kevin has considered selling franchises of his very successful hardware store. However, he is concerned that the franchises will destroy the reputation of the company and end up hurting his business. What advice would you give Kevin?
A) He should not sell franchises because he will have no control over how the franchisees operate their businesses.
B) He should instead raise the capital to build and operate the new stores himself because this is a cheaper way to expand.
C) He should hire the managers of the new franchises so that he has control over their operations.
D) Through the franchise agreement, he can ensure that the new stores are operated according to his own standards.
E) Although he will have a little control over how the franchises operate, he will not be able to influence their advertising or level of service.
Question 2
Which of the following statements is true of cost-based pricing?
A) It determines price by adding a fixed margin to the per-unit cost of the product.
B) It determines the price based on the amount consumers are willing to pay for a product.
C) It is an interesting theoretical approach to pricing, but it is seldom used in the real world.
D) It is obtained by subtracting the desired margin, which yields the target costs.
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