Question

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,

(i) the quantity of hot dogs supplied is closer to the socially optimal level.
(ii) the price of hot dogs is closer to marginal cost.
(iii) the hot dog market at the beach is less competitive.

Answer 1

Answer: A consequence of their failure is that, relative to the outcome the vendors would like,

(i) the quantity of hot dogs supplied is closer to the socially optimal level.

(ii) the price of hot dogs is closer to marginal cost.

In this case the hot vendor are relatively creating externalities. i.e. 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.