Managerial Economics & Organizational Architecture 6th Edition by James Brickley , Clifford Smith ,Jerold Zimmerman

Exercise 8

ANALYZING MANAGERIAL DECISIONS: Opening a New Restaurant
You are the owner of a small restaurant chain in the Portland, Oregon, area. All five of your restaurants employ the same basic business concept and have similar building designs, menus, and service formats. Each of the outlets has a head manager who has primary responsibility for the day-to-day operations at that location. All five of the outlets are within a 20-mile radius of your central office. You are actively involved in the business and frequently meet with your top management staff. You often spend time at the restaurants during business hours, visiting with customers and helping to manage the staff. You pay each of your managers $40,000 per year and provide them with a package of fringe benefits (e.g., paid vacation and insurance). Over the past three years you have also given each of the managers a $3,000 holiday bonus in December.
Several of your customers moved last year from Portland to Salt Lake City, Utah. They have e-mailed you suggesting that you open a restaurant in Salt Lake. They miss your food, service, and restaurant format. They believe the new restaurant would be successful. You have conducted market research and are thinking seriously about starting the new restaurant. One concern that you have is that Salt Lake is over 750 miles from Portland.
Discuss the incentive conflicts that are likely to arise between owners and managers of a restaurant.