Simple Lessons in Economics

Last night I ventured out to visit my neighborhood jazz club, the Green Mill.  I was meeting some people to talk about business, etc. I got there earlier than the rest, sat at the bar, and enjoyed a PBR for $2.50. The music did not start for another hour, so there were only a few people hanging out at the bar. About thirty minutes later my group started showing up, so we grabbed a table and ordered another round of drinks. This time my PBR was $3.00. Now, a 20% increase in thirty minutes is a steep cost adjustment. So what happened? Well, music was closer to its start time, yes. Around thirty more people walked through the door, right again. But how does all that justify the cost increase? The product cost did not change. Demand may change over the course of the night, but probably not enough to hurt local supply. So what are the changing factors?

I noticed two changes over the course of the time period. First, they started accepting American Express. They do not allow you to carry a tab, so a 2.5% average merchant charge does affect cost. Since your options are cash or Amex, most people may pay with a card. The other, more dramatic, cost structure change was labor. They went from one lady, to at least four other servers/bar tenders. I suspect this justifies the greatest per unit cost increase. This practice may be more common than I realize. I have just never seen it happen so starkly before my eyes.

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