Question

Suppose pizzerias and sushi bars experience roughly the same economies of scale, with a common minimum market size of 200,000 meals per year. The per-capita demand for pizza is 20 meals per year and the per-capita demand for sushi is 4 meals per year. Suppose you move from a city with a population of 20,000 to a city with a population of 60,000.

The number of pizzerias will change from [_____] to [_____]
The number of sushi restaurants will change from [_____] to [_____]

Answer 1

Number of pizzerias will change from 2 to 6.

Number of sushi bars will change from 0 to 1.

Step-by-step explanation:

In a city with population = 20,000

Demand for pizza = 20 × 20,000

= 400,000

So, there will be 2 pizzerias as one can serve 200,000 meals per year.

Demand for sushi = 4 × 20,000

= 80,000

So, there will be 0 Sushi bars as one sushi bar requires minimum market size of 200,000 meals per.

In a city with population = 60,000

Demand for pizza = 20 × 60,000

=1,200,000

So, there will be 6 pizzerias as one can serve 200,000 meals per year.

Demand for sushi = 4 × 60,000

= 240,000

So, there will be 1 Sushi bars as one sushi bar requires minimum market size of 200,000 meals per

Hence,

Number of pizzerias will change from 2 to 6.

Number of sushi bars will change from 0 to 1.