For years Jenny operated the only donut shop in town, making large profits. Earl

Question

For years Jenny operated the only donut shop in town, making large profits. Earlier this week a new donut shop opened in town, and Jenny's business has fallen because some of her former customers are now patronizing the other donut shop. How should Jenny respond to this new donut shop? Should she (a) raise her donut prices to try to get more money from her remaining customers, or (b) cut her prices to try to regain some of her former customers? Carefully explain your answer in 3 or more complete, content-rich sentences that use concepts and cause-effect relationships from this course. (Your score depends entirety on your explanation, which needs to use concepts and cause-effect relationships from this course.) b) Jenny should cut her price to try to regain some of her customer. Because it she cut her price

Explanation / Answer

Jenny would choose to decrease the price in order to attract more customers to her donut shop. Because of the new shop in the town, some of her customers substituted her donuts from that of the new shop. Decreasing the price level of donuts by her would make her customers choose her donuts again And consequently her profits will rise.

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