Question

Antonio's is the only restaurant in town that serves Italian food. A new Italian restaurant opens down the street from Antonio's. In a market economy, what is the most likely effect of a competing restaurant opening in the neighborhood?

Answer 1

The correct answer is: "the price of Italian food will decrease and its quality will improve"

If a new Italian restaurant opens in the neghborhood, the market share will be splitted between the two competitors. They will have to work hard to attract as many consumers as possible.

They can do so by using the two following techniques: (1) differentiating their products so that consumers perceive as unique and high quality and (2) becoming more efficient producers, so that they are able to decrease the price of their meals to make it more attractive.

Answer 2

In a market economy, the most likely effect of a competing restaurant opening in the neighborhood would be that business is taken away from the existing restaurant