Even though the cost of bathroom maintanence is lump sum and so, doesn't affect marginal costs, it can affect price if consumers' willingness to pay for your product (say, a hamburger) is greater if the option of restroom service is included. The observation that this is largely an empirical question is correct.
Suppose consumers do not price the bathroom option. Inclusion of a bathroom increases average cost, but not marginal cost. In the long run, if the industry is a constant cost competitive industry, then price must equal marginal cost must equal minimum average cost. If everyone supplies a bathroom (which, we assume is not valued by consumers), then I can make larger profits than anyone else in the insustry (my minimum average cost is lower than everyone else's). I will be imitated and everyone gets rid of the bathroom. So, if an industry is constant cost competitive, and if consumers don't value bathrooms, then, in a long run equilibrium, we will not see bathrooms. If bathrooms are valued, then the industry demand curve shifts outward, leading to a higher equilibrium price. If I do not provide a bathroom, it may seem I can increase my profits, as in the case above. However, I will really now be selling a different product, that is hamburgers without bathrooms (a dismal thought!). In this case, the existance of bathrooms will happen if the extra revenue generated by consumers' increased willingness to pay, exceeds the cost of maintaining bathrooms. To sum up, if consumers do not value bathrooms, we will not see them. That is a matter of economic logic, not empirics. If consumers do value bathrooms, we will see them only if they are valued by the consumers at an amount greater than their maintenance costs. That is an empirical issue. This is all subject to the additional assumption imposed of competitive constant cost industry. At 01:11 PM 5/30/2002 -0400, you wrote: > > > >>From: john hull <[EMAIL PROTECTED]> >> >>Your question seems straight forward, yet I'm not sure >>I understand. Assuming the problem is at my end, let >>me try again and you can tell me where I'm going >>wrong. That I may poorly articulate what I'm thinking >>is a given, so please bear with me. > >Everything you've written makes sense, indicating that the question is >deeper than I first gave it credit for being. But I'm still going to be >stubborn and defend my answer. > >>I face a certain state of the world and I optimize. >>Suppose that the government then levies a lump-sum >>tax. Since it doesn't affect any marginal values, it >>is non-distortionary, so I don't change my opitimizing >>behavior--I just suffer a loss of utility from the >>taxation (I have to enjoy less across the board). >> >>Analogously, the firm with the free bathroom >>experiences the cost of maintenance as just a lump-sum >>expense. It may be spread out, but it affects no >>marginal values. Since it affects no marginal values, >>it doesn't affect the firm's optimizing behavior--the >>firm just suffers lower profits as a result. The >>prices the firm charges for goods are the same with >>and without the free bathroom. Hence toilet >>maintenance is not a part of the prices. > >The reasoning makes sense, until we take a step back and ask ourselves >something: namely, "Since the cost of bathroom maintenance has no effect on >price, does that mean that a McDonald's(tm) would be able to charge the same >prices WITH a bathroom as they would WITHOUT one?" Let's look at this >quandary in detail. > >Suppose it's common practice in the city of Boston for fast-food restaurants >to allow free access to their restroom facilities. One restaurant manager >wakes up one morning with the idea that the bathrooms are just one big cash >sink (no pun intended), and decides to brick up his men's and women's >lavatories. He reasons that customers will still come in to enjoy his hot, >delicious McSomethings, and can just use the bathroom in Wendy's across the >street. > >Now, this is just a thought experiment; we're unfortunately short in >empirical data. But I think the following is reasonable to assume >(challenge me if I'm wrong): > >* Facilities with bathrooms cater to sit-down meals moreso than take-out >meals. 7-11, for instance, will sell you a whole meal for $5.00 (hot dog, >chips and soda), yet doesn't expect you to sit there and eat it. The >Dunkin' Donuts kiosk in the Harvard Square train station doesn't even have >any seats; no one's expected to stick around. But if a customer's going to >invest a certain amount of time at a restaurant location, a bathroom is a >reasonable enticement / externality / public good / what-have-you. > >* Sit-down meals tend to be larger than take-out meals. You can bring a >large party into a restaurant that caters to sit-down meals (the soccer team >after practice, your high school buddies after a late evening, etc). In an >establishment where meals are expressly take-out, you're limited by the >patience of everyone else who's waiting to order. If it's a late-night >drive-through window, for instance, you're even limited in how large your >party can be in the first place (by how many people you can fit into a car >or van). > >* Therefore, if the presence of bathrooms determines an orientation towards >sit-down meals rather than take-out, then bathrooms encourage larger OR more >diverse orders (though they may not allow for higher prices). There may not >be a change in price per item, but it's reasonable to assume a change in >revenue. > >... I think I strayed almost entirely from the point we were discussing, but >it's a train of thought I found interesting, nonetheless. > >-JP > >> >>That's what I was thinking originally. As I mentioned >>before my assumptions may be wrong. I'm also >>neglecting "secondary" effects, e.g. pee for free = >>repeat business, etc. >> >>Anyway, let me know if I make no sense or if my >>reasoning is totally out of whack. I don't want to go >>through life with a head full of bad economics! >> >>Best to you, >>jsh >> >> >> >> >> >> >> >> >> >>--- John Perich <[EMAIL PROTECTED]> wrote: >> > Well, I made the comment originally because, in the >> > neoclassical framework, >> > would one have any reason to assume that any given >> > cost WASN'T included in >> > the final price? >> > >> > -JP >> > >> > >> > >From: john hull <[EMAIL PROTECTED]> >> > >Reply-To: [EMAIL PROTECTED] >> > >To: [EMAIL PROTECTED] >> > >Subject: Re: In Praise of Pay Toilets >> > >Date: Tue, 28 May 2002 17:20:34 -0700 (PDT) >> > > >> > >John Perich wrote: >> > > >> > >"Why do you assume the cost of bathroom maintenance >> > >isn't already included in the price charged?" >> > > >> > >I hadn't thought about it. I guess I had assumed, >> > >perhaps incorrectly, that bathroom maintenance >> > costs >> > >would be idependent of the prices charged for goods >> > at >> > >the establishment. Thus bathroom maintenance costs >> > >would not bear on optimizing decisions, in much the >> > >same way that lump-sum taxes are non-disortionary. >> > > >> > >On reflection it has occured to me that prices may >> > >affect bathroom maintenance costs: if Mc.D's >> > charges >> > >less for burgers and obtains more customers, then >> > they >> > >may have more bathroom use which may require more >> > >bathroom cleaning, i.e. an increase in bathroom >> > >maintenance costs. If such were the case (it seems >> > >reasonable), then maintenance costs would enter >> > into >> > >the profit max. problem and would therefore affect >> > the >> > >price, right? That's not a rhetorical question; if >> > >I'm wrong please tell me. >> > > >> > >Well--I think that was what I was thinking anyway: >> > >that bathroom use would be independent of the >> > price. >> > >Of course Michael Etchison may be right as well (if >> > I >> > >read him correctly), in that firms engage in >> > hueristic >> > >pricing and just toss bathroom maintenance into the >> > >mix. (If I read you wrong, Mr. Etchison, I >> > apologize >> > >for that.) That possibility just never crossed my >> > >mind. >> > > >> > >-jsh >> > > >> > > >> > >===== >> > >"...for no one admits that he incurs an obligation >> > to another merely >> > >because that other has done him no wrong." >> > >-Machiavelli, Discourses on Livy, Discourse 16. >> > > >> > >__________________________________________________ >> > >Do You Yahoo!? >> > >Yahoo! - Official partner of 2002 FIFA World Cup >> > >http://fifaworldcup.yahoo.com >> > > >> > >> > >> > >>_________________________________________________________________ >> > Send and receive Hotmail on your mobile device: >> > http://mobile.msn.com >> > >> > >> >> >>__________________________________________________ >>Do You Yahoo!? >>Yahoo! - Official partner of 2002 FIFA World Cup >>http://fifaworldcup.yahoo.com >> > > > > >------------------------------------------------------------------------------ >I'm never gonna work another day in my life. >The gods told me to relax; they said I'm gonna be fixed up right. >I'm never gonna work another day in my life. >I'm way too busy powertrippin', but I'm gonna shed you some light. > >- Monster Magnet, "Powertrip" > > >_________________________________________________________________ >MSN Photos is the easiest way to share and print your photos: >http://photos.msn.com/support/worldwide.aspx > ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Kevin D. Sachs, Ph.D. Assistant Professor phone: 513.556.7198 University of Cincinnati fax: 513.556.4891 Department of Accounting/IS email: [EMAIL PROTECTED] 302 Lindner Hall, P.O.Box 210211 Cincinnati, OH 45221-0211 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
