Lawn Mowing Economics

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As a teen, Max had a great business mowing lawns. He used his hand-pushed power mower to build up a large clientele in a radius of his family’s house. When his friend and neighbor Charlie entered the business, ending Max’s local monopoly, Max didn’t have to cut his price—Charlie just expanded the radius of the client area.

Max knew he had problems, however, when he saw Charlie drive out of his garage on a riding mower. Charlie could now do four times as many lawns/day as Max. Max started losing customers when Charlie cut prices, as he could afford to (because his average cost/lawn was lower than Max’s, and had a minimum with a higher output.) Not wanting to compete on price, and unable to get his parents to buy a riding mower, Max decided his opportunity cost was above his now lower lawn-mowing wage, and he quit the business to open a lemonade stand.

(HT to MF)

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  1. jonathan says:

    Buried in there is a story about government. Not federal but state and local. Say Charlie is South Carolina and Max is New Jersey. Charlie’s parents put up the cash, a subsidy, to buy the riding mower. Government “interferes” in markets not merely at the federal level. Let’s say Max’s parents are saving for college for 3 kids, while Charlie’s family isn’t saving for college for their 3 kids, so Charlie’s family has more money available for subsidy. This means, just like with South Carolina, there is less investment in welfare and more money available to subsidize business.

    This is pretty close to one of the biggest issues facing America: are we a country or a bunch of confederated states? If we’re a bunch of confederated states, then we reward lower cost, lower welfare decisions because taking business from neighbors is good. The idea then becomes that by beating each other up, we are better competitors against others. If we’re a country, then the question is why are we doing this to each other rather than working together to maximize our welfare while competing against outsiders?

    I know the comparison isn’t exact, but it’s close enough.

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  2. Brant says:

    Interesting. How about this example for lawn mowing economics. As a teen in the early 80′s I mowed my neighborhood lawns for around $20 dollars a pop. In 2011 my parents and these same neighbors pay around $25-$28 dollars for lawn crews of adult, immigrants to provide the same service. I’m not implying there is anything wrong with it. These crews provide a good, fast service to happy customers. I just find it interesting that the cost of having your lawn mowed has only increased around $5-8 dollars over the last 30 years. Also, I no longer see any teenagers mowing lawns.

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  3. Bill says:

    How often do kid-run lemonade stands make money?

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  4. Caleb b says:

    Max should have set up a tent on Charlie’s front yard, potested and camped for weeks, demanding that Chalie end his greed.

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    • Jeff says:

      Brilliant!

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    • Jason says:

      This would make sense if…

      Charlie’s dad owns the lawnmower manufacturer and his uncle manages the local superstore. They collude to prevent the sale of other riding mowers, giving Charlie the monopoly. They also donate millions to ensure the election of their preferred local officials, who support zoning laws to ensure big lawns and other favorable conditions for Charlie’s business.

      Oh, and for good measure – Charlie hires minimum wage workers to expand his business and keeps the lion’s share of the profits for himself. He depends on the local government to provide his workers with health care and other services that they cannot afford. He explains that his unique talents in lawn-mowing management make his high salary necessary and explains that if they tax him, he will just raise his rates to pass the cost back to them.

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  5. Brian says:

    Max should have sued.

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  6. North says:

    But I thought there’s always money in the banana stand… lemonade stands too ?

    Doesn’t the permit cost (business license, peddler’s permit, food permit, etc), insurance (what if someone gets sick, chokes, is injured, or dies?), and related book-keeping for serving lemonade present entry barriers not faced by his lawn-mowing competitor?

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  7. Xian says:

    What did Max do with all that money he made, prior to Charlie? why not ‘invest’ it in a riding mower, or check with a neighbor to rent theirs. Even better as a true capitalist, merged with Charlie and added trimming/edging to the list of services and both work together and create an empire of lawn maintenance that no other kid could complete with.

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  8. joe says:

    The cheapest riding mower costs more than 4x the cheapest push mower.

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