Monopolistic to monopoly
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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 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?
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In a monopolistic competition, there are several competing producers that sell differentiated products. The producers do not have full control over the price but they have some control over their prices. There are low barriers to entry or exit. So in the Northwest, potato chips there were monopolistic competition.
In a monopoly there is only one seller who maximizes its profits, sets prices, and practices price ...
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