Question

The local grocery in a small southern city is the only option for the residents, so it has a monopoly on the grocery business there. When the population of the city grows and demand for groceries increases, what is the grocery store most likely to do?

Answer 1

The grocery will increase the prices.

Explanation:

If a grocery in a small city has a monopoly on the market, it means that it can control the price without any fear of competition, so it keep higher prices and make more profit. Since the people don't have any other place from where to shop, they have to accept those prices, as going to another place to buy the same things will cost them even more with the cost of travel.

If the population rises of the small city, and the grocery still has a monopoly on the market, the first thing that it will do is to increase the prices of the products. The reason as to why this move will be the first one is that the demand will be larger than what the grocery has at disposal for selling, and the people will compete to get to the products, putting the grocery in a poll position to make even more profit.