| I don't understand how this constitutes an explanation: "Why don't restauranteurs maximize their profits? They're leaving money on the table," said Alice. "They don't maximize their profits because, if they did, they wouldn't be running a restaurant in the first place. The fact that so many of them end up destitute is proof of that," replied Bob. That seems to me more like a reaffirmation than an explanation. Doesn't it still seem mysterious when you put it that way? If the market for restaurants were far from competitive (due to say, a law sharply limiting the number of restaurants in a town) I could understand that sort of attitude. It seems to me, though, that even though there's a lot of product differentiation, there are still many restaurants per cuisine type in every major city and ultimately, a meal is a meal. We should be able to learn something by granting that the market is competitive. So that in the long run marginal revenue equals marginal cost, and firms that can't do that, exit. Given that, why are so many restaurants run as labors of love according to principles that would make a freshman econ major wince? And does that explain why so many restaurants that are run that way are run into the ground? Doesn't this state of affairs (which is pretty much public knowledge to anyone who's ever had a friend who worked in a restaurant) imply the existence of a large stack of $20 bills on the sidewalk for a profit-maximizing restaurant to swoop in and pick up? That question isn't rhetorical; I find restaurant economics genuinely confusing, to the point where I am willing to believe that the most parsimonious explanation involves legions of chef/owners irrationally blowing their credit ratings on a mid-life crisis. A mid-life crisis with waitstaff and sanitation permits. |