Question

After reading the text, please answer the questions below

Tough times are forcing change on Britain’s beleaguered pubs

Would you like a croissant with that?

TAKE a morning stroll past the Jack Phillips in Godalming, a prosperous commuter town in Surrey, and you might well not realise that it is, in fact, a pub. Traditionally, pubs do not open before about 11am, and the first customers through the doors are often the local alcoholics. But the Jack Phillips has been open since 7am, serving cheap coffee and hot breakfasts to a clientele comprising young parents with pushchairs, pensioners and a sprinkling of besuited office types grabbing a quick coffee (and checking their e-mail using the wireless internet connection) before work.

The multifaceted hostelry is run by J D Wetherspoon, a biggish pub firm that owns 775 low-cost alehouses. The company posted good preliminary results on September 10th, with revenues up 4.3% on last year to £996.3m ($1.56 billion) and pre-tax profits up 34%, to £60.5m. Its success rests partly on its strategy of diversifying away from selling beer in the evening.

Since its pubs began opening early in the morning last year, sales of breakfasts and coffee have risen by about 40%. J D Wetherspoon reckons that it sells 400,000 breakfasts a week, second only to McDonalds, and 600,000 cups of coffee, behind only Starbucks and Costa Coffee. It now in effect runs two businesses from each of its premises: a family-friendly café by day, and a budget boozer by night. Its method suggests that, rather than being ousted by coffee shops, the non-alcoholic rivals that have proliferated on British high streets since the 1990s, pubs can incorporate them. Other firms, such as Enterprise Inns and Punch Taverns, are watching closely.

This sort of innovation is a response to harsh times in the pub industry. Every week 39 pubs close their doors, according to the British Beer and Pub Association (BBPA), a trade body. In 2005 there were 58,600 pubs in Britain; now there are around 52,500. Many publicans principally blame competition from supermarkets, whose buying power (and tax advantages) allow them to undercut pub prices. Tim Martin, J D Wetherspoon’s founder and chairman, bemoans the interference of government. The previous Labour administration imposed a ban on smoking in public venues in 2007, plus above-inflation rises in beer tax (though its reform of licensing laws in 2005 enabled J D Wetherspoon and others to open early).

Social changes compound the problem: Neil Williams of the BBPA points out that alcohol consumption has fallen by 13% since 2004, partly due to tax rises but perhaps also because public-health messages about the risks of heavy drinking have got through. Meanwhile, the growing British taste for wine, often consumed in swanky bars or with a meal at home, has dented sales of beer, the pub’s staple product.

But not all the news is grim—and it is not just their owners that are casting around for ways to keep Britain’s pubs open. Just as pubs are diversifying, officialdom is beginning to view them more benignly: as linchpins of their neighbourhoods, which help to foster vague but politically fashionable goods such as community spirit and social cohesion. The Labour government, universally hated by publicans, appointed a “minister for pubs” a few months before it lost the general election in May. The Conservatives’ manifesto gave pubs the status of “essential services”, alongside facilities such as post offices, and promised powers for people to club together to buy boozers threatened with closure. More recently, as part of its drive to cut public spending, the new Conservative-Liberal Democrat coalition floated the idea of merging pubs with public libraries.

Back at the Jack Phillips, this time by night, the pub has reverted to a more recognisable business model. The place is thronged with youngsters getting tanked up for a night on the tiles—the kind of overindulgence that worries policymakers. But the latest plan to deter binge-drinking could prove a blessing for pubs. Scottish politicians, who pioneered the smoking ban in Britain, are considering setting minimum prices on drinks, determined by their alcohol content. The prices that are being mooted would make supermarkets drinks more expensive, but leave many pub tipples unaffected.

Discussion Questions:

1. Draw a graph of a monopolistically competitive firm that is currently earning a short run profit. Be sure to include marginal revenue, demand, marginal cost and average total cost curves. What will happen to this firm as it enters the long run?

2. What would you expect to happen to these initial firms as more and more pubs begin branching out into other markets?

Multiple Choice/True False Questions:

1. The fact that pubs are now competing with firms like McDonald’s for breakfast implies that the price for a hot breakfast should

1. Rise
2. Fall
3. Stay the same

2. The market in which pubs operate is considered monopolistically competitive. Which of the following is NOT a characteristic of monopolistic competition.

1. Zero long run profit.
2. Many small firms.
3. Homogeneous product
4. Easy entry into the market.

3. As more firms enter a market, demand for the product of any one firm will ______________ and become ________________.

1. Rise; more elastic
2. Fall; more elastic.
3. Rise; less elastic.
4. Fall; less elastic

Answer 1

1)The short run diagram is drawn,however in the long run demand will fall and become more elastic and so profit will be wiped out.

2)The profits earned by the initial firms as more and more pubs start branching out to other market should fall as competition will increase.

Multiple choice

1)fall.This is because , the pubs are competing with firms like Mc Donalds and so they should reduce price in order to attract customers .

2)Homogeneous product.

Monopolistically competitive firms do not have homogeneous products .They sell differentiated products ie products which differ from one another in ,packaging,etc.

3) fall ,more elastic

This is because as more firms enter the market ,consumers will have the option of purchasing from other firms and so demand for the product of one firm will fall and become more elastic ie percentage of quantity demanded with change in price will be more or less .If price is high ,demand will be less and if price is low demand will be high.