A small country has an industry with many small producers who compete with each other in a

perfectly competitive output market. The industry as a whole has an upward sloping marginal

cost curve (for instance apple farmers whose farms have different productivity in growing

apples). Then a hedge fund buys up all the small firms until there is only one monopoly

producer.

a. Suppose the country does not allow any exports or imports of this good. Compare domestic

consumption, production, and price when there are many firms in perfect competition

versus one monopoly firm. Higher, lower, or the same? Draw and label 2 diagrams to

explain your answer.

b. Now suppose the country opens up to free trade and begins to import the good. Compare

consumption, production, imports, and the domestic price of the industry with many firms

and the industry with one monopoly firm. Draw and label 2 diagrams to explain your

answer.