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.
- Given that the new company is now run as a monopoly, how will
this benefit the stakeholders involved, such as the government, businesses, and
- 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?
- 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