Markets - why they fail Essay
* Allocative efficiency occurs when resources are distributed in such a way that no consumers could be made better off without other consumers becoming worse off.
* Dynamic efficiency occurs when resources are allocated efficiently over time.
* Productive efficiency is achieved when production is achieved at lowest cost.
* Technical efficiency is achieved when a given quantity of output is produced with a minimum number of inputs.
Consumer and Producer Surplus
Text Box: A perfectly competitive market consists of: Many firms in the industry- therefore firms cannot manipulate the prices. Low barriers to entry and exit- if profits are achievable new …show more content…
3. Unfair competition - once created a monopolist may use unfair competitive practices, such as cutting prices temporarily until the competitor is forced out of business
4. Natural cost advantages - some firms are natural monopolies because not a single firm in the industry can reduce their average cost to their minimum. This is usually because that firm is experiencing economies of scale:
Purchasing Economies - bulk buying often results in a cheaper cost per unit input
Marketing Economies - The cost of advertising can be spread over more units of output
Technical Economies - A large supermarket costs less to build than a small one
Managerial Economies - large firms employ workers who specialize in specific tasks, who are therefore more qualified and efficient.
Financial Economies - large firms are more credit worthy than small firms. 5. Product Differentiation - by making their product seem very different from the competition through marketing and branding a monopoly can be established.
6. Control over outlets - so competitors cannot get their products to the market
Government may allow a monopoly to exist because:
Alone they are