Perfect Competition Market Versus The Monopoly Market In a perfect competition market, an economy is said to be enjoying economic efficiency. This means it has achieved the following: -Allocative Efficiency which means that resources have been allocated so that it is most efficiently used and there is no wastage. -Productive Effciency which means that the firm is producing at the lowest average cost (please refer to the lowest point of the Average Cost Curve) -But individual firms in a PC market are small and do not produce at a very large scale (unlike the monopolist)

Perfect Competition Market Versus The Monopoly Market In the monopoly market structure, the monopolist is assumed to enjoy economies of scale. This means that: -They can increase their output by a very large amount (increase their scale by a very large amount) and bring average cost down significantly. Sometimes the average cost can even by lower than the market price achieved in an economically efficient PC market. -But the monopoly is known to hold market power and is able to produce less so as to increase the price of the good.

Perfect Competition Market Versus The Monopoly Market In the monopoly market structure, the monopolist is assumed to enjoy market power with low competition owing to the the high barriers of entry in the monopolistic market structure. This means that: -They can restrict competition via predatory pricing strategy. (temporary charge very low prices so that any competitor will not be able to compete). -They maybe wasteful, complacent and inefficient in the use of resources (this is called X inefficiency). -Will not produce goods and services at a level of output and price that would be benefit society and at times government may have to intervene to break up this monopoly or open up the market to allow more competitors into it. -But in a perfect competition market, it is assumed that resources are efficiently used with no wastage and at a level of output that would be allocative and productively efficient (lowest point on the long run average cost curvve) thereby achieving the lowest price possible to the benefit of the consumers.

Perfect Competition Market Versus The Monopoly Market Given the costs and benefits to the stakeholders (consumers, producers, government) of the 2 different market structures, should the government promote one type of economic structure over the other? Which is better? Monopoly market structure or perfect competition market structure? If you are not sure, read this presentation again from page 1.