Question: Under the terms of the current contractual agreement, Burger Queen (BQ) is entitled to 20% 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, mystery 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 given 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 franchisees’ net profit?

(B) Suppose the franchise owner sets the price and sales quantity. What price and quantity will the owner set? (Remember that the owner keeps only $.80 of each extra dollar of revenue earned) How does the total profit earned by the two parties compare to their total profit in part B).