3. Assume that the potato chip industry in the Northwest in 2009 was competitively structured and in long-run competitive equi- librium; firms were earning a normal rate of return. In 2010, 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 long-run costs and demand. These results are presented in the following figure. MC= EMC, AC D (EMC, = the horizontal sum of the marginal cost curves of the individual branches/firms.) a. Indicate 2009 output and price on the diagram. b. By assuming that the monopolist is a profit-maximizer, indi- cate on the graph total revenue, total cost, and total profit after the consolidation. c. Compare the perfectly competitive outcome with the monopoly outcome. d. In 2010, an old buddy from law school files a complaint with the Antitrust Division of the Justice Department dlaiming that Wonks has monopolized the potato chip industry.

3. Assume that the potato chip industry in the Northwest in 2009 was competitively structured and in long-run competitive equi- librium; firms were earning a normal rate of return. In 2010, 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 long-run costs and demand. These results are presented in the following figure. MC= EMC, AC D (EMC, = the horizontal sum of the marginal cost curves of the individual branches/firms.) a. Indicate 2009 output and price on the diagram. b. By assuming that the monopolist is a profit-maximizer, indi- cate on the graph total revenue, total cost, and total profit after the consolidation. c. Compare the perfectly competitive outcome with the monopoly outcome. d. In 2010, an old buddy from law school files a complaint with the Antitrust Division of the Justice Department dlaiming that Wonks has monopolized the potato chip industry.

ECON MICRO

5th Edition

ISBN:9781337000536

Author:William A. McEachern

Publisher:William A. McEachern

Chapter8: Perfect Competition

Section: Chapter Questions

Problem 2.4P

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