Assume that the craft beer industry in Hawaii in 2017 was competitively structured and in long-run competitive equilibrium; firms were earning a normal rate of return. In 2018, a young entrepreneur quietly bought up all the breweries and began operations as a monopoly called “Tropical Suds.” To operate efficiently, Tropical Suds hired a management consulting firm, which estimated long-run costs and demand. These results are presented in the following figure. 

a. Indicate 2017 output and price on the diagram.

b. By assuming that the monopolist is a profit-maximizer, indicate on the graph total revenue, total cost, and total profit after the consolidation.

c. Compare the perfectly competitive outcome with the monopoly outcome.

d. In 2018, a bar owner files a complaint with the Antitrust Division of the Justice Department claiming that Tropical Suds has monopolized the craft beer industry. Justice concurs and prepares a civil suit. Suppose you work in the White House and the president asks you to prepare a brief memo (two or three paragraphs) outlining the issues. In your response, be sure to include: 

1. The economic justification for action. 

2. A proposal to achieve an efficient market outcome. 

Transcribed Image Text:

0 MC = EMC D AC Q (EMC; = the horizontal sum of the marginal cost curves of the individual branches/firms.)