In 2007, the potato chip industry

In 2007, the potato chip industry in the Northwest was

competitively structured and in long-run competitive equilibrium; firms were

earning a normal rate of return and were competing in a monopolistically

competitive market structure. In 2008, two smart lawyers quietly bought up all

the firms and began operations as a monopoly called “Wonks.” To operate

efficiently, Wonks hired a management consulting firm, which estimated a

different long-run competitive equilibrium.

  1. Given that the new company is now run as a monopoly, how will

    this benefit the stakeholders involved, such as the government, businesses, and

    consumers?

  2. Given the transition from a monopolistically competitive firm

    to a monopoly, what will be the changes with regard to prices and output in both

    of these market structures?

  3. What market structure is more beneficial for Wonks to operate

    in, and will this be the same market structure that will benefit consumers?

Be sure to explain the reasoning behind each of your

answers.

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