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?