Reference no: EM132422649

Long-run competition. Because of regulatory requirements and the cost of opening a dedicated growing facility, it is very expensive to open retail pot establishments in Massachusetts. Once the growth facility and the store are opened, product flies off the shelves and more can be grown and sold relatively cheaply.

a) You have been hired by a prospective retailer to recommend pricing and marketing strategies for an Amherst facility. On one graph: Draw a hypothetical Average Total Cost (ATC) curve, the Marginal Cost curve, and a Demand (MU) curve for pot. (Hint: The point where Demand intersects MC should be below the ATC curve.)

b) Show the area of net profit (or loss) under perfect competition for the Amherst store as the difference between average total cost and the average revenue (or the price). (Note your profit is the amount sold times the average price price minus ATC.)

c) What will happen to the store if another retailer starts selling legal pot? What will happen when a large number of stores open? What happens to the industry and the number of companies under competitive conditions? If there are already stores in the Amherst area, would you necessarily recommend opening a new one?

d) Discuss at least three strategies your employer could follow to give it more monopoly power and allow it to raise prices even without collusion.