In the small country of Cruziland the government is against trade, and only domestic production of wine can be consumed, legally. Currently, there are only two large domestic wine producers licensed by the government and competing for Cruziland's wine market shares. In an upsetting recent election, a new president has been elected, and she promises that one of her first economic changes will be to open trade with the rest of the world, eliminate wine licenses, and allow wine imports from world-wine producers.
a) Before the change in the presidency, since imports of wine are not possible, explain: What type of Market structure is the domestic wine market and how the only two Cruziland wine producers maximize profit (or minimize losses)?
b) After imports of wine are allowed from the rest of the world wine-producers what would you say the wine-market structure could change into? Choose one among perfect competition, monopolistic competition, Oligopoly and monopoly. Why? Justify your answer
c) Compare the price and output determination of the two domestic wine-producers before and after imports are allowed? "In the short-Run."
d) Discuss how this market structure change can affect the two domestic wine producers' profit (or loss) in the short run and long run.