Why don't Burgers cost 5 cents? In this blog post, economist Bob Murphy raises a puzzle involving the principle that in a competitive market, the price equals the marginal cost:


  There’s a general principle from intro to microeconomics that says in
  a competitive industry, in equilibrium P=MC. So how would we actually
  apply that in practice to the fast food industry? At the point at
  which the burgers are already made and sitting on the back warmer,
  what’s the marginal cost to the firm of the worker picking up the
  burger and handing it to a customer? 5 cents? So, in an efficient fast
  food industry, burgers should be priced at 5 cents. Don’t you dare say
  that the firm needs to charge at least enough to cover average costs,
  because (as David points out) that involves a sunk cost fallacy…
  Something is obviously not right in the above. But I’m curious to see
  how you guys would unpack it. If you want to say, “I don’t trust them
  there textbooks with their funny graphs!” OK fine, but ideally I’d
  like you to solve it within the world of standard textbook micro,
  since presumably that can be done.


What he's saying is that once the burger is already made, the cost of making the burger is a sunk cost, and thus the marginal cost of the burger is just the cost of the tiny labor involved in picking it up and selling it to the customer.

So why is it that in the fast food industry, the price of a burger takes into account the cost of making the burger and not just the cost of handing it over to the customer?  Is it because the fast food industry is far away from the conditions of perfect competition, or can this be explained using a perfect competition model?
What he's saying is that once the burger is already made, the cost of making the burger is a sunk cost, and thus the marginal cost of the burger is just the cost of the tiny labor involved in picking it up and selling it to the customer.


That's sort of an odd position to take. 

Obviously once the burger is cooked you can't recuperate the costs, but in the aggregate, the decision to cook some number of burgers in such and such a time period is made before actually cooking them. So the cost of making a burger (including labor) isn't a sunk cost; it's a prospective cost.

Additionally, just because the monetary cost of making the burger is the same for each burger doesn't make it a sunk cost, just fixed (perhaps). But more to the point, there's a time cost which varies the more burgers you cook. We pay for convenience. Part of the marginal cost of cooking the burger is the opportunity cost of that time that could be spent not running a nice little fast food restaurant.