Question

For a while, Southern Brewers is the only coffee supplier in the market. Eventually, Albert Coffee enters the market and sells coffee at lower prices than Southern Brewers does. Later, Café Brites enters the same market with lower prices for coffee. Southern Brewers now charges lower prices than Albert Coffee and Café Brites do. What made Southern Brewers lower its prices?

A.
competition
B.
decrease in supply of raw materials
C.
government policies
D.
high demand from consumers

Answer 1

A- competition (people but the lowest price)

Answer 2

The correct answer is A.

When a company operates in a market as the only producer (monopoly) has market power to fix a higher price and to not care too much about the quality of its products, as consumers do not have a different supplier from whom they could purchase the product instead.

Otherwise, if new firms appear in the market there is competition. If a different firm enters the market and offers the same product at a lower price, many consumers will switch and buy the product from the new competitor. The former monopolist is forced to lower the price too not to lose all its former customers.