Assume that the potato chip industry in the Northwest in 2007 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?
• 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? Explain the reasoning behind your answers