Hot dog vendors on the beach fail to cooperate with one another on the quantity of hot dogs they should sell to earn monopoly profits. A consequence of their failure is that, relative to the outcome the vendors would like,

Question

Quizplus · Accepted Answer

The failure of hot dog vendors to cooperate on the quantity of hot dogs they sell leads to a competitive market outcome, where the price of hot dogs is driven down to the marginal cost of production. This results in lower profits for the vendors than they would earn if they were able to collude and restrict output.

Hot Dog Vendors on the Beach Fail to Cooperate with One