Photo AI
6 (a) With reference to Figure 1, calculate the three-firm concentration ratio for branded coffee shop chains market - Edexcel - A-Level Economics A - Question 6 - 2022 - Paper 1
Question 6
6 (a) With reference to Figure 1, calculate the three-firm concentration ratio for branded coffee shop chains market. (b) With reference to Figure 2 and your unders... show full transcript
Worked Solution & Example Answer:6 (a) With reference to Figure 1, calculate the three-firm concentration ratio for branded coffee shop chains market - Edexcel - A-Level Economics A - Question 6 - 2022 - Paper 1
Step 1
With reference to Figure 1, calculate the three-firm concentration ratio for branded coffee shop chains market.
Answer
To calculate the three-firm concentration ratio, we sum the market shares of the three largest coffee shop chains:
- Costa Coffee: 2681 shops
- Starbucks: 1025 shops
- Caffè Nero: 648 shops
Total number of shops for these three chains = 2681 + 1025 + 648 = 4354.
Total number of branded coffee shops = 2681 + 1025 + 648 + 50 + 40 + 30 + 3748 = 8060.
Thus, the three-firm concentration ratio (CR3) is calculated as follows:
This indicates that the top three chains control approximately 54.1% of the market.
Step 2
With reference to Figure 2 and your understanding of price elasticity, examine two factors that may cause significant changes in the international price of coffee beans.
Answer
Two key factors that can cause significant changes in the international price of coffee beans include:
-
Supply Fluctuations: Weather conditions, diseases affecting coffee plants (such as Coffee leaf rust), and geopolitical factors in coffee-producing countries can severely impact the quantity of coffee beans produced. Any adverse event can lead to reduced supply, thus increasing prices.
-
Demand Changes: Shifts in consumer preferences for coffee, impacting sales, can cause prices to increase or decrease. For instance, a rise in the popularity of specialty coffee may increase demand, pushing prices higher.
Step 3
With reference to Extract A, assess whether this is the case for coffee shops.
Answer
Profit maximisation is indeed a critical objective for coffee shops, particularly larger chains. However, it is affected by several factors:
-
Cost Increases: As noted in Extract A, rising costs such as rent and wages can significantly affect profitability. If costs rise faster than revenues, achieving profit maximisation becomes more challenging.
-
Consumer Preferences: Customers may prioritize quality over cost, prompting shops to adjust their offerings based on quality standards instead of purely focusing on profit maximisation. Independent coffee shops may find it more profitable to provide unique experiences rather than just lower prices.
Step 4
Using a cost and revenue diagram, discuss the impact of 'rising costs' for a profit maximising firm (particularly in reference to profitability (Extract A, line 12)).
Answer
Rising costs will shift the firm's marginal cost (MC) curve upwards, leading to changes in the equilibrium output point in the cost and revenue diagram. As MC rises:
- The optimal level of output for maximising profit diminishes, as the intersection point with marginal revenue (MR) moves leftward.
- Profit maximisation will occur at a lower quantity than before, reducing potential profits.
This means that firms, particularly coffee shops, may have to either increase prices or reduce operating costs to maintain profitability, thereby directly affecting their market strategy.
Step 5
With reference to Extract B, evaluate the changes to the consumer experience in coffee shops.
Answer
The changes to the consumer experience in coffee shops as noted in Extract B can be evaluated as follows:
-
Increased Focus on Experience: Greggs' strategy emphasizes enhancing the coffee shop experience, signifying a shift from merely serving coffee to providing a holistic experience that includes ambiance and service quality.
-
Menu Diversification: The emphasis on health and dietary options (like gluten-free and vegan choices) reflects changing consumer preferences that focus on health and wellness. By catering to these preferences, coffee shops can enhance the consumer experience and attract a broader customer base.
Thus, these changes suggest a more consumer-centric approach in coffee shop operations.