1. Why might you expect to see flat royalty payments in home-based franchises but revenue-based royalties in franchises that operate from commercial buildings? (Hint: Among the most popular home-based franchises are cleaning services offered to businesses, and delivery services for seniors who live at home.)
a. Is your explanation consistent with the fact that franchised tutoring services often charge a fixed royalty per student enrolled?
2. A small-volume foreign auto maker limits the number of its franchised dealers in the United States and gives them exclusive territories. There are also non-dealers who have no official connection with the manufacturer. They buy its cars overseas and sell them in the United States, a phenomenon sometimes called a "gray market." If you are a manufacture do you necessarily want the gray market to cease to exist? Why or why not? How about if you are a franchised dealer?
3. Most restaurant customers tip according to a percentage rule-between 15 and 25 percent of the bill. Diners who have dinner and a $20 bottle of wine usually pay the same percentage of the bottle price as diners who order a $100 bottle. Why, when the same efforts must be made to uncork and pour both bottles?
4. How does your analysis of VMP change if the employer is a monopolist producer of its output but a price-taker in the labor market?
5. Is it possible that elementary education produces a public good but higher education does not? Explain.
6. We said that an uncrowded country club golf course has aspects of a public good. Why? Is it still a public good if it becomes crowded and people's games are slowed down.