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Ompare the supply and pricing decisions of firms in both a perfectly competitiive and monomply market .explain clearly the assumptions made in each case. to what extent would you regard a local taxi firm as operating in a perfectly competitive market - Essay Example

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Ompare the supply and pricing decisions of firms in both a perfectly competitiive and monomply market .explain clearly the assumptions made in each case. to what extent would you regard a local taxi firm as operating in a perfectly competitive market

In a monopoly market, there exists only one supplier of goods and services. This may be due to various reasons, for instance, restricted government entry into the market and creation of a monopoly following the firms merger. Besides, Producers that has patents over ideas, copyright or names providing them exclusive rights to supply a good or service exhibit monopoly. Such is a characteristic of a monopoly where the supplier has exclusive ownership of a given scarce resource. All these sources of monopoly power enable it to set their market price. Consumers lack close substitutes and as such they set prices as they wish. In a monopoly, the market price is set above marginal cost, and there is a positive economic profit earned by the firm for each unit supplied.
On the other hand, under perfect competition, there are many buyers and many sellers. And every player is provided with the perfect information about the market. As such the firm must accept the price determined through the forces of demand and supply. The firm is thus considered a price taker --it can produce as little or as much as it likes without affecting in any way the market price in any way. Each firm must at the same time match the price offered by their competitors since the products are identical in many ways. Or else, consumers can shift their purchases the competitor’s firm. There exist fewer differences in quality and quantity of goods and services between sellers. This is characteristic of perfect competitive market structure where products can easily be substituted. In other words, the company’s decision in perfect competitive market about how much to supply or what price to all the supply to the consumers depends on competitiveness of the market structure.
Local taxi firm, for instance, is an excellent example of the player that can be considered to be in a perfectly competitive market. Local Taxi Company operates in vehicle industry where there are many consumers of their service ...Show more
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A market is structured differently basing on the characteristics of competition within the market. At one extreme is perfect competition and at the other extreme is monopoly. The type of…
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