Question

Why are there so few gas stations in the center of large cities? With such heavy traffic one ought to be able to do an excellent business. Briefly explain

Answer 1

For large cities , the cost of rent is usually high, i.e high fixed cost. so lets say a new player enters the market and establishes a gas station. This will increase the supply of gasoline, which will lower costs. This will make it unprofitable for all the pump station nearby as these pump stations need to seel a high quantity of gasoline to break even with the high fixed cost and its variable costs.

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