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MBA - Economics - MicroEconomics - Essay Example
The analysis that we have undertaken involves two market structures- the Perfect Competition and Monopoly. Before we comment, we need first to define the two concepts. Perfect Competition conditions exist when firms selling an identical product are all are price-takers and have a relatively small market share…
They are characterized by a lack of economic competition for the good or service that they provide and lack of viable substitutes.
Results would show that under the Perfect Competition scenario, attaining profit maximization equilibrium at the given equations for cost and pricing would result to a loss for the company. The output may be high and the price low as compared to the Monopoly scenario but the overall effect is that the company does not gain from the venture. It is not surprising that it turned out that the firm will profit more from the monopoly situation because consumers do not have any alternative. Monopolies are expected to produce less and set it a higher price because there is no substitute available on the market. Consumers need the product and so they will buy in at whatever price is set thereby resulting to a decline in social welfare.
The lack of competition results to less concern for efficiency and innovation. Products would experience little or no improvement. Since there are no available substitutes the consumer is forced to use the product which further leads to decrease in consumer welfare. Nonetheless, there is a concept which states that the loss of efficiency of firms can raise a potential competitor's value enough to overcome market entry barriers or provide incentive for research and new alternatives. ...