Which of the following is true of franchising in the context of economics?

• A. Franchising requires the franchisee to develop their own unique brand and business model.
• B. Franchising allows a business owner to operate under the brand and business model of an established company.
• C. Franchising does not involve any contractual agreement between the franchisor and franchisee.
• D. Franchising is only used in the manufacturing sector.

Answer: (B)

Verified step by step guidance

1. Step 1: Understand the concept of franchising in economics. Franchising is a business arrangement where one party (the franchisor) allows another party (the franchisee) to operate a business using the franchisor's brand, business model, and support system.
2. Step 2: Recognize that franchising involves a contractual agreement. This contract outlines the rights and responsibilities of both the franchisor and franchisee, including the use of trademarks, business methods, and fees.
3. Step 3: Note that franchising does not require the franchisee to create their own unique brand or business model. Instead, the franchisee operates under the established brand and follows the franchisor's business model.
4. Step 4: Understand that franchising is not limited to any single sector such as manufacturing; it is commonly used in various sectors including services, retail, and hospitality.
5. Step 5: Based on these points, identify the correct statement as the one that says franchising allows a business owner to operate under the brand and business model of an established company.