Question

The pizza delivery industry is monopolistically competitive. Little Joe's Pizzeria raises its prices by 10%, but all the other pizzerias in town keep their prices the same. Which of the following is most likely to occur?

a) Little Joe's Pizzeria will not be able to sell any pizzas, since it was the only firm to raise its price
b) Little Joe's Pizzeria profits will increase
c) Little Joe's Pizzeria will lose some of its customers
d) the number of customers served by Little Joe's Pizzeria will increase

Answer 1

Option (C) is correct.

Step-by-step explanation:

It was given that pizza industry is under the conditions of monopolistically competitive industry. The firms under monopolistic competitive industry are selling the similar products but these products are not perfect substitutes and the decision made by one firm do not affect directly the decision made by other firms in the industry.

Little Joe's raises the prices by 10%, so as a result demand for his pizza decreases because some of the individuals won't be able to afford that price. Hence, Little Joe's Pizzeria will lose some of its customers.