Question

if you owned a gas station in Southern California and an earthquake occurred that cut off the supply of gasoline you could sell for four to six weeks, would you raise the prices?

Answer 1

Yes I would but not to high maybe like a 5-10 cents raise because people depend on the gas for the car generator and etc. But you also need money for your family, business etc.

Answer 2

This depends on whether I am in a monopoly or competitive market as explained under explanation below.

Step-by-step explanation:

This depends as there are two ways to it as follows:

1. Monopoly case: If my station was the only gas station in the Southern California, then I could increase the price as high as I wanted. This is because I had a monopoly power over the price during the supply shortage and the buyers do not have any other station to buy gas.

2. Competitive case: If my station was not the only gas station, I would not increase the price in order not to lose my market share to my competitors. The reason is that if raised my price and the other gas stations did not increase their prices, my customers would stop coming to my gas station to buy and they would start to buy form my competitors. They might continue buying from my competitors even after four to six weeks when there was shortage supply. As result, I may lose them or my market share forever.