Japadog is the pioneer of street vending in Vancouver. They are unique to Vancou
ID: 395739 • Letter: J
Question
Japadog is the pioneer of street vending in Vancouver. They are unique to Vancouver(they tried to branch outin New York but apparently failed) and they sell “Japanese-style” hot-dogsin the streets. They have a stand that serves a stretch of West Cordova. There’s only one licence, so they do not decide how many stands to open. One stand. On any given day Japadog expects that up to 100 visitors may want to buy their hot-dogs. They think that the Hotelling spatial model is a good framework to make theirbusiness decision, and here are their estimates: the dog’s reservation price is $9, a customer’s cost of traveling along West Cordova is $6/km, there are no fixed costs, the stretch of West Cordova they serve is 1 km long, and they have a stand right in the middle ofthatstretch. The cost of making the hotdogsis flat $6 per dog.
1. What is the profit-maximizing price ($ per hot-dog)?
2. How many hot-dogs(per day) would Japadog sell?
3. What profit will Japadog expect to make ($ per day)?
Explanation / Answer
Answer:1
The profit-maximizing price ($ per hot-dog) is the price where the marginal price is equal to the marginal cost for the hot-dog products.
Marginal cost = The flat cost for the hot dog = $ 6/ piece
The marginal price = marginal cost =$ 6 / piece.
Thus the profit maximizing price for the hit-dogs is $ 6 / per hot dog.
Answer 2.
Number of hot-dogs(per day) would Japadog can sell = the number of customers reach to the Japadog for hot dog purchase = 100 custmers
Thus the sale for hot dog = 100 nos.
Answer 3.
The profit will Japadog expect to make ($ per day) as below
Cost of Hot dog = $ 6
Price of Hot dog = $ 9
Profit per piece of hot dog = $9-$6 =$3
Total Quantity =100 nos.
Total Profit = Unit Profit * Total Sale Quantity = 100* 3 = $ 300 /-
Total Profit = $ 300
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