Ashford 6: - Week 5 - 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 …show more content…
The existence of long-run abnormal profits can give the enticement to invest more heavily in research and development. This investment may yield a better product to the consumer. It may also bring a lower cost to the consumer as eventually the monopoly can use it to give a return on the initial capital cost.
The capability to utilize consumers would come from high prices charged to the consumer. A monopoly is capable to gain abnormal profit in both the short and long run, as long as the firm's average cost is lower than its average proceeds. By doing this, prices will be at a low level, so as to put off potential firms from joining the industry as they know that they would not be able to produce at such a low cost, this benefits the consumer, as there is a lower price available.
Monopolistic competition is a market structure in which there are many firms sell products that are similar but not