Question

Antonio’s makes the greatest pizza and delivers it hot to all the dorms around campus. Last week Antonio's supplier of pepperoni informed him of a 25% increase in price of pepperoni. What happens in the market for Antonio's pizzas?

Answer 1

Answer:

At first, It will have no impact.

Later it will make the equilibrium price go higher. Quantity unchanged

Explanation:

First The raw material cost increase in the pepperoni will decrease the profit of Antonio's pizzas with that ingredient. It will not have an impact on the pizzas market.

But once after, Antonio's decides to markup the price, to get their previous profit margin back, the price of the pizzas will increase and because is the only supplier around campus their demand will not react (low to any elasticity to price) to the price rise and accepts the new price.