Price/Output Determination. Orange Freight, Inc., an over-the-road common carrier, is considering two proposals for truck maintenance service. First, a national diesel service franchise has offered to purchase the business' overhaul facilities at an attractive price in return for an exclusive franchise on diesel service. A second proposal would allow several small companies to enter the business without any exclusive franchise agreement or competitive restrictions. Under this plan, individual companies would bid for the right to provide service in a given region. Orange Freight would then allocate business to the lowest bidder.
Orange Freight has conducted a survey of regional service hubs to estimate the amount they would be willing to pay for various amounts of diesel service. Orange Freight has also estimated the total cost of service per truck. Service costs are expected to be the same whether or not an exclusive franchise is granted.

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The Answer of Price/Output Determination. Orange Freight, Inc., an over-the-road common carrier, is considering two proposals for truck maintenance service. First, a national diesel service franchise has offered to purchase the business' overhaul facilities at an attractive price in return for an exclusive franchise on diesel service. A second proposal would allow several small companies to enter the business without any exclusive franchise agreement or competitive restrictions. Under this plan, individual companies would bid for the right to provide service in a given region. Orange Freight would then allocate business to the lowest bidder.
Orange Freight has conducted a survey of regional service hubs to estimate the amount they would be willing to pay for various amounts of diesel service. Orange Freight has also estimated the total cost of service per truck. Service costs are expected to be the same whether or not an exclusive franchise is granted.