Fixed costs = Rent, Lease/Installment payments for equipment, Utilities
Variable costs = Hourly wages, Food/Beverages
As demand increases, fixed costs will largely remain the same unless the restaurant needed to expand in order to meet the increased demand. In this case, they might have to pay increased rent and also lease/buy new equipment
Variable costs however, will increase in proportion to the increase in demand, no matter how big or small. The owner will now have to employ more staff to service the increased number of patrons as well as buy more food and beverages to service them
A perfectly competitive firm I have recently purchased something from is a food truck in New York City. There are numerous food trucks in this city and the proprietor of the food truck is aware of the industry he is in, in that he knows any price increases above his marginal cost would greatly decrease his sales as patrons would only have to walk a short distance to another food truck to find a lower price
Jan 21st, 2015
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