As far as the impact on various stakeholders is concerned, Wonk will probably benefit the most. Wonks had greater pricing power than the firms in the previous monopolistic market structure because now it had no substitutes. But at the same time, marketing also has certain benefits such as giving information to the customer and increasing competition as the competitors feel threatened.Īfter the lawyers purchased all the firms and combined them to form Wonks, the new company essentially became a monopoly because now it was the whole potato industry in the Northwest. The companies would differentiate themselves through brands and marketing, making their demand curves less elastic in the process as well as charging higher price markups (). Moreover, price is not equal to MC but greater than it in the long run (see the chart below) though profits are still zero. As a result, the Northwest potato industry was inefficient. Thus, the existing players would be left with excess capacity and underutilization of their assets. It would translate to not only lower market shares for the existing players but also lower prices of their products. This means that profits greater than zero would attract new entrants, driving down the demand curve of all existing players. As far as Wonks is concerned, the overall benefits to the company of operating in a monopoly market structure would be greater than in a monopolistic market structure.īefore the foundation of Wonks, the potato chip industry in the Northwest in 2007 was a monopolistic market structure in long-term equilibrium. On the other hand, profit maximization takes place at a level where marginal revenue (MR) is equal to marginal cost (MC), just as in perfect competition. Unlike perfect competition, marginal revenue (MR) is not equal to demand but less than it in the short run. In short, monopolistic competition borrows characteristics from both the perfect competition and monopoly market structures. In addition, there are low barriers of entry and all firms possess some pricing power (Investopedia). Monopolistic competition is a market structure that is characterized by many firms offering similar though not exactly the same product and are profit maximizes. Relation of Global Warming and Extreme Weather Condition Power Point Presentation With Speaker Notes
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