McDonald's and other fast-food chains rely mainly on franchisees to operate the restaurants to avoid the problem of:
A)adverse selection.
B)moral hazard.
C)insurance.
D)deductibles.

Question

Quizplus · Accepted Answer

Fast-food chains like McDonald's not only entrust their brand name to franchisees, but also their business operations, which includes food preparation, customer service, and overall management. By doing so, they mitigate the risk of moral hazard, where the franchisees exert little effort to maintain quality, hygiene, and customer satisfaction. The success of one franchisee can impact the reputation of the entire chain; therefore, it is essential that they select the right people who would be committed to upholding the standards of the brand.

McDonald's and Other Fast-Food Chains Rely Mainly on Franchisees to Operate