Question

In: Economics

Explain reasons for pure competition to fail in achieving the efficiency outcomes it is applauded for.

Explain reasons for pure competition to fail in achieving the efficiency outcomes it is applauded for.

Solutions

Expert Solution

Perfect Competition may turn out to be inefficient due to :

No economies of Scale.

In Perfect Competition there are many small firms producing relatively small amounts. Industries with high fixed costs would be particularly unsuitable to perfect competition. This is one reason why perfect competition. is unlikely in the real world. It means firms cannot benefit from efficiencies of scale.

Dynamic Inefficiency

Due to lack of super normal profit a firm in perfect Competition may not resort to Research and Development. Due to lack of R&D a firm will become static. There will be no improvement in productivity or reduction in costs thus resulting in dynamic Inefficiency.

Perfect Knowledge

Due to perfect knowledge there will be no benefit to produce new technology as it will be shared with other companies, thus reducing the competitive advantage.

Possibility of Market Failure.

If there are externalities in production or consumption there is likely to be market failure without government intervention.

No Product Differentiation

Undifferentiated products prove to be boring to customers as they have no choice or very little choice. Product Differentiation is of immense importance in certain consumer products like cars, clothes etc.


Related Solutions

5. For the Pure Competition Market Structure 1 List and explain the characteristics of pure competition...
5. For the Pure Competition Market Structure 1 List and explain the characteristics of pure competition and why we study that market structure. 1)Very Large Numbers of buyers and sellers(small market shares) 2)Standardized Product-perfect substitutes(all the same)Examples? 3)“Price Takers”(individual producers and consumers have no control over price or quantity) 4)FreeEntry and Exit-from the market Please help to explain these four answers for the above question.
Economists develop and apply models of market competition (pure competition, pure monopoly, monopolistic competition, oligopoly) to...
Economists develop and apply models of market competition (pure competition, pure monopoly, monopolistic competition, oligopoly) to describe the conditions that impact price and output decisions made by managers of organizations. Real world markets can be described as existing along a continuum and exhibiting elements of competition and monopoly. Explain what is meant by that statement. In your response, identify some measures and characteristics that economists use to describe different market structures (i.e. how do economists distinguish between market structures?).
c. Explain the TWO efficiency implications of Monopolistic Competition.
c. Explain the TWO efficiency implications of Monopolistic Competition.
Critically evaluate and explain: a. Compared to pure monopoly and pure competition, monopolistically competitive industries. b....
Critically evaluate and explain: a. Compared to pure monopoly and pure competition, monopolistically competitive industries. b. In the long run, monopolistic competition leads to a monopolistic price but not to monopolistic profits.
Briefly state the basic characteristics of pure competition, pure monopoly, monopolistic competition, and oligopoly. Why is...
Briefly state the basic characteristics of pure competition, pure monopoly, monopolistic competition, and oligopoly. Why is the equality of marginal revenue and marginal cost essential for profit maximization in all market structures?
Is pure competition a "desirable" market model for all industries? Should industries aspire for pure competition?...
Is pure competition a "desirable" market model for all industries? Should industries aspire for pure competition? Why or why not? Think of an industry that does not function in a purely competitive market currently. Describe the changes that would be required, if this industry wanted to function under pure competition.
•Is pure competition a "desirable" market model for all industries? Should industries aspire for pure competition?...
•Is pure competition a "desirable" market model for all industries? Should industries aspire for pure competition? Why or why not? •Think of an industry that does not function in a purely competitive market currently. Describe the changes that would be required, if this industry wanted to function under pure competition.
Assuming pure competition and long-run equilibrium are possible in the real world, what impact would this have on efficiency?
Assuming pure competition and long-run equilibrium are possible in the real world, what impact would this have on efficiency?
Are the variable overhead efficiency variance and the labour efficiency variance related? Explain with two reasons
Are the variable overhead efficiency variance and the labour efficiency variance related? Explain with two reasons
Briefly state the basic characteristics of pure competition, pure monopoly, monopolistic competition, and oligopoly. Under which...
Briefly state the basic characteristics of pure competition, pure monopoly, monopolistic competition, and oligopoly. Under which of these market classifications does each of the following most accurately fit? In each case, justify your classification. a. a supermarket in your hometown b. the steel industry c. a Kansas wheat farm d. the commercial bank in which you or your family has an account e. the automobile industry.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT