Assume that Belgium has a large number of pharmaceutical stores in 2018 was competitively structured; however, certain chemists did supply illegal medical goods. Over the course of three years, one supplier, Markglen, establishes operations as a monopoly of illegal pharmaceutical products. To operate efficiently, Markglen either collaborates with others or uses corporate espionage to sabotage its competitors and force them to leave the market.

a. Assuming constant average and marginal costs of supplying illegal pharmaceutical goods, indicate on a graph the 2018 equilibrium in the illegal market in Belgium.

b. By assuming that Markglen is a profit-maximizer, indicate on the graph the new equilibrium following Markglen’s “takeover.”

c. Compare the two outcomes in (a) and (b) with respect to price, output, and profits.

d. If Belgian Federal Public Service for Justice has received a complaint and wants to make the most efficient use of its resources, would it prefer the market arrangement in (a) or in (b)? Explain.

e. If society considers illegal pharmaceutical products to be economic “bads” (more is worse or society places a negative value on them), would it prefer the market arrangement in (a) or in (b)? Explain.