Microeconomics 13th Edition by Russell Sobel, David Macpherson, Richard Stroup, James Gwartney

Exercise 4

The retail liquor industry is potentially a competitive industry. However, the liquor retailers of a southern state, with the cooperation of the state legislature. organized a trade association that sets prices for all firm. For all practical purposes, a competitive industry became a monopoly. Compare the price and output policy of a purely competitive industry with the policy that would be established by a profit-minimizing monopolist or trade association. Who benefits and who is hurt by the formation of the monopoly?