1. Assume that in the independent nation of Qari sugar production is
controlled by a sugar monopoly, SugarCo, which earns economic profits.
There are well over a million buyers of sugar in Qari but only one
seller of sugar. Imports of sugar are forbidden.
a. In what type
of market structure does SugarCo compete? List and briefly explain the
characteristics of this market structure.
b. Draw a graph that shows the determination of the profit maximizing price and quantity of sugar in SugarCo.
· Label the profit maximizing price as “Ppm” and the quantity produced as “Qpm.”
· Shade in the area of economic profits.
· Outline or shade in the deadweight loss.
c.
Neighboring nation Nari now invades Qari and topples its government.
SugarCo is destroyed and the sugar market is broken into hundreds of
competing firms, all selling an identical product. In what type of
market structure do these new firms now compete? List and briefly
explain the characteristics of this new market type.
d. How will
the price and quantity sold in this new market (part c) differ from the
price and quantity you determined in part b, above? Redraw the graph
from part b but show the price and quantity from part b and the price
and quantity from part c.
e. SugarCo was the sole employer of
sugar workers. What will happen to the wages of sugar workers once the
sugar industry becomes competitive?
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