Explain, and Illustrate Using Graphs, Whether You Think a...

Explain, and illustrate using graphs, whether you think a perfectly competitive industry or a monopoly industry leads to more efficient outcomes for an economy. RESEARCH ESSAY Microeconomics is defined as a study of how economic decisions are made by individuals and groups along with the range of factors affecting those decisions. In relevance to this, the analysis of perfect competition and monopoly regarding efficiency is considered one of the most core basis to the understanding of Microeconomics. This paper argues that a perfectly competitive industry leads to more efficient outcomes for an economy than a monopoly does. In this essay, I will first define the concept of two market structure types and then go on to explore how they†¦show more content†¦So, in this case, perfectly competitive firms can also obtain technical efficiency. As seen in the right graph, with the lack of competition, firms in monopoly can earn great economic profits since they charge a much higher price compared to perfectly competitive firms. According to the diagram, there is allocative inefficiency since monopoly price is higher than MC; firms are producing too little while offering a too high price. In other words, with monopolists, â€Å"resources are under-allocated† to the production of their product (Layton, Robinson and Tucker 2009, 223). Along with this, monopoly firms are not producing the level of outputs where ATC is at its minimum point due to the assistance of high barriers to entry. Thus, firms in monopoly once again fail to gain technical efficiency. Considering the previous discussion, the next section of this paper will explore how the industries of perfect competition and monopoly affect consumer surplus and producer surplus and hence, economic welfare as a whole. In brief, consumer surplus is the difference between the maximum price a consumer is willing to pay and the actual price paid. Producer surplus is the difference between the minimum price a firm is willing to charge and the actual price charged. Below are the two graphs illustrating the differences in economic welfare between the two market structures: Perfect competition Monopoly Within perfect competition industry,Show MoreRelatedSuggestive Solutions Guide to Past Exam Papers5119 Words   |  21 Pagesare more relevant to our current courses as we have used the same textbook, course outline and study guide. Please ignore the multiplier questions as those questions are not relevant for our ï ¬ nal exam. I also encourage my students to go through all those elive sessions (recorded by myself). These elive sessions will refresh your memory as well as help you to understand the critical concepts in Economics. 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