<p>From economic perspective it makes sense to stay open as long as the marginal revenue is higher than marginal cost of staying open. All fixed costs are de facto sunk in the short-run.  In addition, since the number of customers store gets within hour is random, what matters is that the <em>expected</em> marginal revenue is higher than marginal cost.</p>
<p>For example, if some hot-dog stand sells hot-dogs for \$10 and marginal costs for operating per hour is \$20, having a 67% chance of having only 3 customers (each having single hot-dog) per hour will be sufficient to keep the store open (assuming for the simplicity that either 3 people show up or nobody will).</p>
<p>In the example above you could observe hot-dog stand having no customers for 1/3 of a day and it would still make perfect sense for the stand to operate 24/7.</p>
<p>Above is of course just an example. Depending on parameters of the problem (marginal revenue, marginal costs etc), you can construct examples where it makes sense to keep store open even if probability of having a customers per hour is very low. For example, suppose its a jewellery store that gets marginal revenue of \$1000 per sale but has marginal costs of only \$50. Then a probability of having single sale 5% per hour (vs no sale per hour),  would be sufficient to keep the store open (5% probability of one sale means you would expect to see about one customer per day).</p>
<p>Even if shop would be profitable enough just being open during rush hour it would be irrational not being open other hours as long as expected marginal revenue is higher than marginal costs.</p>

CC BY-SA 4.0
2022-09-19T19:34:07.873Z
Number of customer store gets in an hour is random.... true but qualitatively there are some times where number is large and others where it is not
Brian
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2022-09-19T21:36:46.833Z
@TrystwithFreedom yes and my answer explained why, during the times where the number of customers is small, it is still worth while to keep the store open. Note I was giving just simple examples, theory explained above would work for times where there are 1000 customers vs times where only 1 or none customers.
1muflon1
CC BY-SA 4.0
2022-09-19T21:37:16.603Z
Why do you use "marginal costs" in place of costs everywhere? I read the whole answer cutting out the "marginal" in my head and still everything more or less made sense
Brian
CC BY-SA 4.0
2022-09-19T21:37:59.457Z
@TrystwithFreedom because fixed costs are sunk ex post so they dont matter for decision making. At least not in short run.
1muflon1
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2022-09-19T21:39:30.443Z
@TrystwithFreedom no without the word marginal the answer would be wrong. It is actually completely rational and in fact profit maximizing to keep the store running even when costs (not just marginal costs but total costs) are higher than revenues. You still minimize losses (making the profit less negative) when you operate business as long as marginal revenue > marginal costs
1muflon1
CC BY-SA 4.0
2022-09-19T21:40:42.173Z
"sunk ex post " what does this mean? perhaps I am bitting more than my economic knowledge can chew xD
Brian
CC BY-SA 4.0
2022-09-19T21:43:27.063Z
@TrystwithFreedom oh sorry, sometimes I forget that this jargon is not common knowledge. Sunk ex post means that after the store owner pays monthly energy bill and rent those costs should not matter anymore for decision making. Even if your business does not pay enough to cover rent, well the rent is already paid for this month, you can shut down next month but this month the fixed costs are already covered. So it would be foolish to take these fixed costs into account for decision whether to continue doing business this
1muflon1
CC BY-SA 4.0
2022-09-19T21:43:38.150Z
month. Of course before paying next rent - ex ante - you should take them into consideration, but after - ex post - they are sunk (they cannot be recovered and thus no longer matter)
1muflon1
CC BY-SA 4.0
2022-09-19T21:45:33.247Z
I guess this question indirectly gets at the heart of why it's better to work with marginal quantites in economics. Do you agree?
Brian
CC BY-SA 4.0
2022-09-19T21:47:59.247Z
@TrystwithFreedom well I wouldn't say that it is always better to work with marginal quantities because of course in long run you want to take into account fixed costs, but generally speaking rational decisions are made on a margin, so if your goal is to make rational decisions you should think about margins as opposed to totals most of the time
1muflon1
CC BY-SA 4.0
2022-09-19T19:13:50.403Z
2022-09-19T19:21:15.403Z
2022-09-19T19:21:15.403Z
1muflon1
<ul>
<li><p>They get <em>some</em> customers at other times anyway.</p>
</li>
<li><p>Being open more relieves potential customers from having to think about whether the store is open, so more of them will visit the store.</p>
<p>I suspect this is a big effect. You might also consider why buses cover unprofitable routes and don't only run at rush hour.</p>
</li>
<li><p>Many of their costs are fixed and don't increase if they stay open longer.</p>
</li>
<li><p>There may be regulations discouraging businesses from hiring part-time employees instead of full-time.</p>
</li>
</ul>

CC BY-SA 4.0
2022-09-19T19:32:46.370Z
2022-09-19T19:32:46.370Z
Criticize SE actions means ban
<p>I am trying to understand the economics of small local buisnesses like cafes, tea shops etc. I observe that they get 90% of their customer in certain rush hour/ time periods. Yet they keep the shop open the whole day. It doesn't make sense to me. Wouldn't it be better to only keep the working times as to when the maximum number of people come?</p>
<p>Is there any hidden economic reasons I am missing?</p>

CC BY-SA 4.0
2022-09-19T18:04:11.180Z
Do you have some data to support the observation about 90% of customers? That seems exaggerated. Also, just because store has a rush hour that does not mean on a margin it does not earn enough to stay open
1muflon1
CC BY-SA 4.0
2022-09-19T18:09:16.507Z
Okay perhaps an overexaggeration but I Really have noticed that most of the time the small buisnesses I visit are very empty. So, it would seem cheaper to only make the workers work for the time where people actually come @1muflon1
Brian
<microeconomics>
Why are small business open for continuous long hours?
Brian
# Why are small business open for continuous long hours?

(Asked by: username_0 on 2022-09-19)

I am trying to understand the economics of small local buisnesses like cafes, tea shops etc. I observe that they get 90% of their customer in certain rush hour/ time periods. Yet they keep the shop open the whole day. It doesn't make sense to me. Wouldn't it be better to only keep the working times as to when the maximum number of people come?

Is there any hidden economic reasons I am missing?

**Tags:** microeconomics

> **Comments:**
> **username_1**: Do you have some data to support the observation about 90% of customers? That seems exaggerated. Also, just because store has a rush hour that does not mean on a margin it does not earn enough to stay open  
> **username_0**: Okay perhaps an overexaggeration but I Really have noticed that most of the time the small buisnesses I visit are very empty. So, it would seem cheaper to only make the workers work for the time where people actually come @username_1  

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## 2 answers

### Answer by username_1 on 2022-09-19. Score: 1 | Accepted answer

From economic perspective it makes sense to stay open as long as the marginal revenue is higher than marginal cost of staying open. All fixed costs are de facto sunk in the short-run. In addition, since the number of customers store gets within hour is random, what matters is that the *expected* marginal revenue is higher than marginal cost.

For example, if some hot-dog stand sells hot-dogs for \$10 and marginal costs for operating per hour is \$20, having a 67% chance of having only 3 customers (each having single hot-dog) per hour will be sufficient to keep the store open (assuming for the simplicity that either 3 people show up or nobody will).

In the example above you could observe hot-dog stand having no customers for 1/3 of a day and it would still make perfect sense for the stand to operate 24/7.

Above is of course just an example. Depending on parameters of the problem (marginal revenue, marginal costs etc), you can construct examples where it makes sense to keep store open even if probability of having a customers per hour is very low. For example, suppose its a jewellery store that gets marginal revenue of \$1000 per sale but has marginal costs of only \$50. Then a probability of having single sale 5% per hour (vs no sale per hour), would be sufficient to keep the store open (5% probability of one sale means you would expect to see about one customer per day).

Even if shop would be profitable enough just being open during rush hour it would be irrational not being open other hours as long as expected marginal revenue is higher than marginal costs.

> **Comments:**
> **username_0**: Number of customer store gets in an hour is random.... true but qualitatively there are some times where number is large and others where it is not  
> **username_1**: @TrystwithFreedom yes and my answer explained why, during the times where the number of customers is small, it is still worth while to keep the store open. Note I was giving just simple examples, theory explained above would work for times where there are 1000 customers vs times where only 1 or none customers.  
> **username_0**: Why do you use "marginal costs" in place of costs everywhere? I read the whole answer cutting out the "marginal" in my head and still everything more or less made sense  
> **username_1**: @TrystwithFreedom because fixed costs are sunk ex post so they dont matter for decision making. At least not in short run.  
> **username_1**: @TrystwithFreedom no without the word marginal the answer would be wrong. It is actually completely rational and in fact profit maximizing to keep the store running even when costs (not just marginal costs but total costs) are higher than revenues. You still minimize losses (making the profit less negative) when you operate business as long as marginal revenue > marginal costs  
> **username_0**: "sunk ex post " what does this mean? perhaps I am bitting more than my economic knowledge can chew xD  
> **username_1**: @TrystwithFreedom oh sorry, sometimes I forget that this jargon is not common knowledge. Sunk ex post means that after the store owner pays monthly energy bill and rent those costs should not matter anymore for decision making. Even if your business does not pay enough to cover rent, well the rent is already paid for this month, you can shut down next month but this month the fixed costs are already covered. So it would be foolish to take these fixed costs into account for decision whether to continue doing business this  
> **username_1**: month. Of course before paying next rent - ex ante - you should take them into consideration, but after - ex post - they are sunk (they cannot be recovered and thus no longer matter)  
> **username_0**: I guess this question indirectly gets at the heart of why it's better to work with marginal quantites in economics. Do you agree?  
> **username_1**: @TrystwithFreedom well I wouldn't say that it is always better to work with marginal quantities because of course in long run you want to take into account fixed costs, but generally speaking rational decisions are made on a margin, so if your goal is to make rational decisions you should think about margins as opposed to totals most of the time  

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### Answer by username_2 on 2022-09-19. Score: 1

* They get *some* customers at other times anyway.
* Being open more relieves potential customers from having to think about whether the store is open, so more of them will visit the store.

  I suspect this is a big effect. You might also consider why buses cover unprofitable routes and don't only run at rush hour.
* Many of their costs are fixed and don't increase if they stay open longer.
* There may be regulations discouraging businesses from hiring part-time employees instead of full-time.


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