Answer:
The implicit cost of leaving the profession or job depends upon the earnings from profession or job. Generally players earn higher revenue than their coach, so that implicit cost would be higher for a player than a coach. It would be more comprehensive from the following inferences:
- The revenue from shop would be less than the total implicit cost of leaving the profession and explicit cost of running shop.
- However the implicit cost for the coach of university would be less and he/she can earn an economic profit by opening a shop.
- In other words the total opportunity cost for professional would be high than the coach of the university.
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Answer:
(a)
A " Classic Principal-agent " problem exists between hotel 'M' and its franchisees, because there exists a difference in the goals of both the principal (hotel) and the agent (franchise), while dealing with one problem.
The problem is that the private owners, who are supposed to make the decisions that would best serve hotel 'M', are motivated by self-interest which may differ from interests of the hotel.
Hotel 'M' likes to maintain a certain level of quality at each of its hotels. However, maintaining that level of quality requires additional capital investment by franchisees.
The franchisees are unwilling to invest their money in the hotel, because they do not have any interest in promotion of the brand image of hotel 'M'. They only care about their share of personal profits.
This problem could be less severe, if few provisions are added in the contract in terms of requirements issued by the hotel.
(b)
Since the hotel M is a big brand name in the hotel and hospitality industry, it does not like to compromise on its quality standards.
It has achieved this goodwill for itself only because of its high-quality standards, and compromising on it would mean a loss to its image/goodwill.
Even in the case of franchises, the brand name is still associated with the hotel and any negligence on the quality would make customers blame the brand only.
When a person has a bad stay at a hotel, he/she blames the hotel, but not the owners. Customers are not concerned with the ownership as much as they are more concerned with their services.
In addition, franchisees continue to pay premium for the name. iI they are not doing good, then the hotel will lose franchises along with customers, while gaining a tarnished name. A true snowball effect.
(c)
In cases like national parks where business is quite low, there is no/little incentive for hotels to provide quality services.
However, in case of a high repeat business like downtown areas, franchises have a higher incentive to maintain quality to attract customers.
Franchises will have a big incentive to maintain quality to attract business in down-town, where repeat business is the overarching goal.
Thus, it increases their profit and revenue shares.
There is no answer for this question