What are the fixed costs and variable costs that hot dogvendors have to pay? Wha

Question

What are the fixed costs and variable costs that hot dogvendors have to pay? What type of market structure are hot-dog stands under? Why do all hot-dog stands have the same price forhot-dogs?(what would hapen if you try to cut competition'sprices?) As detail as possible. Thank you so much!!! What are the fixed costs and variable costs that hot dogvendors have to pay? What type of market structure are hot-dog stands under? Why do all hot-dog stands have the same price forhot-dogs?(what would hapen if you try to cut competition'sprices?) As detail as possible. Thank you so much!!!

Explanation / Answer

Variable costs include the bun, the hot dogs, the tray, and otherexpenditures that depend upon how many hot dogs he sells. Fixed costs include the investment in his hot dog stand, hislicense to sell hot dogs, and other expenditures that stay fixedeven if he sells different amounts of hot dogs in the short run.Though in the long run, he is able to change some of these fixedcosts, in the short run he incurs these costs regardless of whetherhe sells hot dogs or not. The type of market structure resembles that of perfect competition,since hot dogs are essentially commodities and there is little tono brand differentiation, so customers basically pick hot dogsbased on price. Given this market structure, if the hot dog stand suddenly cut hisprices, his competitors would follow suit, resulting in a downwardspiral that cuts profits for all hot dog stands. Because of theirproximity, hot dog stands can each ascertain other hot dog sellers'prices. And despite the short-term gains associated with droppingthe prices and attracting customers, in the long run hot dog standswill all lose profit if this price-cutting behavior continues.

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