Final Paper 2
Final Paper
It was the year 2007, and the potato chip industry in the Northwest was competitively structured and in long-run completive equilibrium. Firms were earning a normal rate of return and were competing in a monopolistically competitive market structure. In 2008, a couple of lawyers quietly purchased all the firms and began operations as a monopoly called “Wonks.” To operate efficiently, Wonk’s hired a management consulting firm, which estimated a different long run competitive equilibrium. The new company is now run as a monopoly, and this paper shall explain how this benefit’s the stakeholders involved, such as the government, businesses, and consumers. Furthermore, given the transition from a monopolistically competitive firm to a monopoly, I will explain the changes with regard to prices and output in both of these market structures. Lastly, an explanation about which market structure is more beneficial for Wonks to operate in, and if this will be the same market structure that will benefit consumers. In any market transaction between a seller and a buyer, the price of the good or service is determined by supply and demand in a market, (Asmundson, 2010). Supply and demand are in turn determined by technology and the conditions under which people operate. Economists have formulated models to explain various types of markets. The most fundamental is perfect competition, in which there are large numbers of identical suppliers and demanders of the same product, buyers and sellers can find one another at no cost, and no barriers prevent new suppliers from entering the market. Prices can change for many reason
Final Paper 3
The relationship between the supply and demand for a good (and service) and changes in price is called elasticity. In monopoly situations, there usually is a barrier natural or legal to potential