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Development of the Potato Chip Monopoly in the Northwest
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Eco_Final.docx
Review the following information pertaining to the potato chip industry and answer the questions below in a five double spaced page paper (not including title and reference pages).
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.
1. 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?
2. 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?
3. What market structure is more beneficial for Wonks to operate in, and will this be the same market structure that will benefit consumers?
Be sure to explain the reasoning behind each of your answers.
Essay Sample Content Preview:
Development of the Potato Chip Monopoly in the Northwest
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Date Due Development of the Potato Chip Monopoly in the Northwest
In US, the potato chip was invented in 1853, and since this invention, it has been turned into a staple food by many American families. Additionally, it is also considered as a top snack among the majority of people (Maslow 2004). Potato chips are available in many stores, supermarkets and even specialty shops. These Potato chips are packed in a range of textures, styles, flavors and tastes.
In the year 2007, the potato chip industry in Northwest was competitively structured and in the long run achieved competitive equilibrium. During this era, organizations in this industry were earning a substantial amount of profits in the market structure that was competitive in this entity. Two clever lawyers came up with an idea in 2008 to buy all the firms that engaged in the potato chip business. This led to the formation of a monopoly, which they termed as “Wonks”. They hired a subcontractor in management consultancy so as to make operations more efficient. This tactic changed the long run competitive equilibrium of the business entity into ales competitive monopolistic entity. This paper evaluates the advantages of this new monopoly, the anticipated changes with regard to output and pricing in a particular type of market structure and especially the market structure that would mostly of benefit to Wonks Potato Chip and their clientele.
Since Wonks Potato Chip operates as a monopoly, how will this be advantageous to the stakeholders involved, such as the government, businesses, and consumers?
Government
A market structure, which is monopolistic in nature, allows the market franchise, which is offered by the government to such entities. In franchising, an organization is offered to produce particular goods and or services in a given area. In exchange, the government imposes certain regulations in the organization’s operations. The regulations pertains to the pricing, behaviors and conduct and other operations policies. This will also allow the government to obtain higher tariffs and taxes since the organization is the sole manipulator in the market. In addition, the government can impose the use of subsidiaries by the consumers to enhance their operations (Bosch & de Man, 1994).
Consumers
With regard to the welfare impact of pure monopoly, it can be argued that a monopolistic market structure can be advantageous from the producer’s perspective. Wonks Potato Chip will not have other competitors in the industry and therefore, will be able to control its pricing strategy, therefore, maximizing the profits. Additionally, they could be able to regulate their output and make it flexible so as to meet different client’s expectations (Janssen & Moraga, 2000).
Since the monopolistic is the principal supplier of products in the market, it has to face the market demand curve. In other words, the prices determined will be at per to what the consumers expect. The law of demands dictates that the market demand slopes downwards. This is because consumers expect prices of the product produced by the monopolistic firm to be decreasing. Monopolistic firms determine prices after careful market research and a calculation of marginal revenue as well as cost of production.
Monopolistic entities may use their profits to invest with new products and or services so that they can also be of benefit to consumers. A good example could be derived from oil companies who use their resources and profits to find new sources.
Businesses/Investors
On the basis of any given situation, it is postulated that there is an estimation of along- run competitive equilibrium. This is also true in this type of monopoly since there has not been major entrant in this industry. If Wonks Potato Chip continue to expand and remain in the market in the long run, invent returns are poised to be positive. Moreover, there is prospect of the firm blocking other entrants in the market by way of production, discovery, as well as control of the resources including raw materials (Reynolds, 2005).
Updated on
Name:
Course title:
Instructor:
Institution:
Date Due Development of the Potato Chip Monopoly in the Northwest
In US, the potato chip was invented in 1853, and since this invention, it has been turned into a staple food by many American families. Additionally, it is also considered as a top snack among the majority of people (Maslow 2004). Potato chips are available in many stores, supermarkets and even specialty shops. These Potato chips are packed in a range of textures, styles, flavors and tastes.
In the year 2007, the potato chip industry in Northwest was competitively structured and in the long run achieved competitive equilibrium. During this era, organizations in this industry were earning a substantial amount of profits in the market structure that was competitive in this entity. Two clever lawyers came up with an idea in 2008 to buy all the firms that engaged in the potato chip business. This led to the formation of a monopoly, which they termed as “Wonks”. They hired a subcontractor in management consultancy so as to make operations more efficient. This tactic changed the long run competitive equilibrium of the business entity into ales competitive monopolistic entity. This paper evaluates the advantages of this new monopoly, the anticipated changes with regard to output and pricing in a particular type of market structure and especially the market structure that would mostly of benefit to Wonks Potato Chip and their clientele.
Since Wonks Potato Chip operates as a monopoly, how will this be advantageous to the stakeholders involved, such as the government, businesses, and consumers?
Government
A market structure, which is monopolistic in nature, allows the market franchise, which is offered by the government to such entities. In franchising, an organization is offered to produce particular goods and or services in a given area. In exchange, the government imposes certain regulations in the organization’s operations. The regulations pertains to the pricing, behaviors and conduct and other operations policies. This will also allow the government to obtain higher tariffs and taxes since the organization is the sole manipulator in the market. In addition, the government can impose the use of subsidiaries by the consumers to enhance their operations (Bosch & de Man, 1994).
Consumers
With regard to the welfare impact of pure monopoly, it can be argued that a monopolistic market structure can be advantageous from the producer’s perspective. Wonks Potato Chip will not have other competitors in the industry and therefore, will be able to control its pricing strategy, therefore, maximizing the profits. Additionally, they could be able to regulate their output and make it flexible so as to meet different client’s expectations (Janssen & Moraga, 2000).
Since the monopolistic is the principal supplier of products in the market, it has to face the market demand curve. In other words, the prices determined will be at per to what the consumers expect. The law of demands dictates that the market demand slopes downwards. This is because consumers expect prices of the product produced by the monopolistic firm to be decreasing. Monopolistic firms determine prices after careful market research and a calculation of marginal revenue as well as cost of production.
Monopolistic entities may use their profits to invest with new products and or services so that they can also be of benefit to consumers. A good example could be derived from oil companies who use their resources and profits to find new sources.
Businesses/Investors
On the basis of any given situation, it is postulated that there is an estimation of along- run competitive equilibrium. This is also true in this type of monopoly since there has not been major entrant in this industry. If Wonks Potato Chip continue to expand and remain in the market in the long run, invent returns are poised to be positive. Moreover, there is prospect of the firm blocking other entrants in the market by way of production, discovery, as well as control of the resources including raw materials (Reynolds, 2005).
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