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Monopoly and Microeconomics: Potato Chip Industry and Benefit to Stakeholders

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 consumers?

Solution Preview

With a change in structure from a monopolistic competition to a monopoly there will be a reduction in output of potato chips and an increase in prices.

The customers will suffer because they will have to pay a higher price for the same quality of potato chips or even inferior quality of potato chips. The customers will now have a lower choice of chips to choose from. There will be some consumers who will ...

Solution Summary

This solution discusses the impact of a change from a monopolistic competition to a monopoly in 239 words with two references.

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