Question

In terms of standard economic theory, discuss the monopoly and other models that explain the supply of illicit drugs.

Draw graphs if applicable.

Answer 1

The supply of illicit drugs is entirely supply chain where one big monopolist supplies to distributors at premium margin who then sell to end customers. Here the monopolist makes immense profits due to deregulated market and lack kf governance, lack of substitute, barriers to entry being significantly higher and is thus price maker. Since demand is exponentially high the monopolist charges higher rates with MR greater than MC and thus lowers output artificially to boost demand and consumption and raise prices. Prices are lower only when MC =AC.