25 Jul 2011

The Economics of Large Cities

Economics, Shameless Self-Promotion 3 Comments

Some light reading to get your week going. I draw on some obvious facts of the world and try to explain them using economic reasoning. For example, do you know why the best steakhouses are typically in a big city?

3 Responses to “The Economics of Large Cities”

  1. postlibertarian says:

    As the post explains, a good steakhouse requires a big city to get the large customer base it needs to remain profitable. Note, however, that the Internet has made it possible for other types of business to obtain a large customer base regardless (mostly) of physical location. Although there are still plenty of advantages to being physically near a large amount of people.

  2. David R. Henderson says:

    Good article. One disagreement, though. You write:
    He could run a profitable restaurant in Boise, Idaho, charging $100 per meal. But given the customer base in Boise, he would only serve (say) 30 such meals in a typical night. That would generate enough revenue to pay for the rent, equipment, ingredients, and his two other employees, but there would not be much left over for the master chef.
    Which means it’s not profitable.

    • bobmurphy says:

      David, well, I was thinking that he would still be a master chef in Boise, if he didn’t have any better cities in which to be a master chef. I didn’t mean by “not much left over” that he would do better working for somebody else.

      But if you just meant, it’s “not profitable” considering his opportunity cost of the New York outlet, then I agree.