Crepe Creations is considering franchising as unique brand of crepes to stall-holders on Hermoza Beach, which is five miles long. CC estimates that on an average day there are 1,000 sunbathers evenly spread along the beach and that each sunbather will buy one crepe per day provided that the price plus any disutility cost does not exceed $5. Each sunbather incurs a disutility cost of getting up from resting to get a crepe and returning to their beach spot of 25 cents for every ¼ mile the sunbather has to walk to get to the CC stall. Each crepe costs $0.50 to make and CC incurs a $40 overhead cost per day to operate a stall.
1) Suppose now that CC requires that each stall-holder deliver the crepes in its own designated territory. How many franchises should now be awarded, if we make the standard assumption that the effort costs of the stall-holders are the same as those of the sunbathers?
2)How would your answer change if the stall-holders instead incurred effort costs half as much as those of the sunbathers, i.e., if their costs were 12.5 cents for every ¼ mile of distance?