SUVmart wants to buy 250 Rhinos from AutoCorp which wants to charge an upfront franchise fee. What will the franchise fee be?
A) It can be anything below MC so as to guarantee SUVmart's profits.
B) It can be anything above MC so as to guarantee some profits for AutoCorp.
C) It has to be equal to TC so that AutoCorp breaks even on the deal.
D) It has to be equal to MC.

Question

Quizplus · Accepted Answer

The franchise fee should be equal to the marginal cost of production. This will ensure that AutoCorp covers its variable costs and makes a normal profit.

SUVmart Wants to Buy 250 Rhinos from AutoCorp Which Wants