Economic Efficiency Perfect Competition and Monopoly
For instance, the total benefits in relations of utility resulting from the consumer from intense quantity Q, at price P, is exposed clearly in the zone XYCZ in the figure clearly shown below. Price S X P Consumer Surplus Y D Z C Quality The amount that the consumer employ is resolute by the value they pay, P, and the number they buy, Q, that is as it is displayed in the area PYC. This means that there is a consumer surplus because area XYCZ is bigger than area PYCZ. The consumer surplus is given by the XYCZ less PYCZ which equals to XYP (Azevedo and Gottlieb, 2017). Declining Consumer Surplus This will always decline with consumption and in which can clearly be defined by the rule of falling marginal utility, which states that the leading unit of a good or a service spent produces a much superior utility than the additional which in term generates much greater utility than the third and the subsequent units.
Perfect competition can be so efficient than monopoly since in the market place there are a variety of identical products from different sellers thus creating a room for equal competition by all in the market. Perfect competition market also, have a relative market share, buyers in the perfect completion market they also have total information about the commodities being sold in the market as well as the prices as per each firm. Perfect competition is a market that is characterized by the freedom of entry and exit as different firms can enter into the market thus bringing in new capacity, a desire to gain the market share as well as competition (Azevedo and Gottlieb, 2017). Firms that are already in the market will try to protect their market by reducing the possibilities of new entries by coming up with some barriers for example patterns of technologies and [products.
In perfect competition, there are so many sellers and buyers and the various prices of different commodities in the market will reflect the demand and supply. Also, monopolistic market structure have a single seller or in other words of a particular product or service and there is no difference that can be seen between the firm and the industry since the firm itself is the industry thus more supply of the same product in the market. The new firms cannot enter the market because of the reasons that keep them of such as Government licenses and regulations, the huge capital requirement required to start up a business (Azevedo and Gottlieb, 2017). A new technology in the production techniques has also hindered the new firms as well as the economies of scale thus making the firm to run efficiently.
Production quantity is very large in the market depending with demand of the same product by all the consumers. Their willingness determines the market supply in the market by the producer at their own price. As a result the communication sector had a lot of entry barriers in cases of licensing that involved a lot of billions of money being used back then. The Kenya Broadcasting Company so much influenced the communication in the Kenyan society and people could only rely on them to get the information pertaining their nation back them. This resulted to biasness as the whole nation depended on their information (Azevedo and Gottlieb, 2017). After the former Kenyan president back then President Daniel Arap Moi regime the communication sector changed.
The communication regulations changed resulting to a lot of perfect competition in the market (Azevedo and Gottlieb, 2017). Lastly, in perfect completion market there exist a well-defined property rights which determines what may be sold and buyers purchase rights (Page, 2013) References Page, T. Conservation and economic efficiency: an approach to materials policy. Routledge. Hausman, J. A. Azevedo, E. M. and Gottlieb, D. Perfect competition in markets with adverse selection. Econometrica, 85(1), pp.
From $10 to earn access
Only on Studyloop