A local coffee shop operates in a monopolistically competitive market and notices that an increase in the price of coffee beans has raised its costs. After analyzing its demand curve and marginal revenue, the owner decides to raise coffee prices. What is the most likely outcome of this decision considering the characteristics of monopolistic competition?

In a monopolistically competitive market, many businesses sell similar but not identical products, allowing them some control over their prices. When the coffee shop raises its prices due to increased costs, it may lose some customers to competitors, as consumers can switch to other coffee shops offering similar products at lower prices. However, because the coffee shop offers unique flavors or a special atmosphere, it might retain some loyal customers who value those qualities. The overall outcome is that while the shop may see a temporary increase in revenue from the price hike, it could ultimately face a decline in sales volume if customers decide to seek alternatives. For example, if the coffee shop raises its prices from $3 to $4, some customers may still buy their coffee, but others might choose a nearby shop that sells coffee for $3.