Bradford is a small town that currently has no fast-food restaurants. McDonald's and Burger King are both considering entering this market. Burger King will wait until McDonald's has made its decision before deciding whether to enter. Use the decision tree below to determine the optimal strategy for each company, assuming that the minimum rate of return that owners of fast-food restaurants require on their investment is 15%. McDonald's a. What is the optimal strategy for Burger King? ○ A. Not enter the market. B. Enter the market if McDonald's builds a large store. C. Enter the market whether or not McDonald's builds a small store or a large store. D. Enter the market if McDonald's builds a small store. Q Enter Rates of return McDonald's BK 16% 16% Burger King LVY Large Store Don't Enter Rates of return McDonald's 25% BK 0% Small Store Rates of return McDonald's BK Enter 20% 20% Burger King Rates of return Don't McDonald's BK Enter 30% 0% b. What is the optimal strategy for McDonald's? ○ A. Build a small store. B. Build a large store. C. Building either a small store or a large store would be optimal. ○ D. Not build another store.

Bradford is a small town that currently has no fast-food restaurants. McDonald's and Burger King are both considering entering this market. Burger King will wait until McDonald's has made its decision before deciding whether to enter. Use the decision tree below to determine the optimal strategy for each company, assuming that the minimum rate of return that owners of fast-food restaurants require on their investment is 15%. McDonald's a. What is the optimal strategy for Burger King? ○ A. Not enter the market. B. Enter the market if McDonald's builds a large store. C. Enter the market whether or not McDonald's builds a small store or a large store. D. Enter the market if McDonald's builds a small store. Q Enter Rates of return McDonald's BK 16% 16% Burger King LVY Large Store Don't Enter Rates of return McDonald's 25% BK 0% Small Store Rates of return McDonald's BK Enter 20% 20% Burger King Rates of return Don't McDonald's BK Enter 30% 0% b. What is the optimal strategy for McDonald's? ○ A. Build a small store. B. Build a large store. C. Building either a small store or a large store would be optimal. ○ D. Not build another store.

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter2: Fundamental Economic Concepts

Section: Chapter Questions

Problem 4E

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