Question

Providing transport related examples, analyse and compare the two extremes market structures
and explain why perfect competition is considered to be the most desirable market structure (250 words)

Answer 1

Monopoly and perfect competition are the two extremes of market structures but there are also similarities between the two market structures.Profit maximization is the main objective of both the firms and both have costs and production functions.But there are certain key differences like monopoly has no price competition and there is one seller and many buyers in the market and in perfect competition there is price competition and large number of buyers and sellers .Monopoly charge higher price and get higher profit while perfect competition charge normal price and get normal profit.Transport is important in both the market structures and the difference between the two market structures can be found by the cost benefit analysis of providing public transport in the two even though private sectors are also important in transportation. The direct benefit of providing public transport in monopoly is lower price and economy of scale and indirect benefit is equal quality to all.The cost is that the consumers have no choice and no attention is given to consumer satisfaction.But providing public transport in perfect competition the direct benefit is public interest and not to a particular group and the indirect benefit is priority is to consumer preference.No fluctuation in price and the service provided is stable.The cost is higher service to the state.The return on investment in the competitive market is more and competitive market is capable of providing better public transportation even though private sectors are also important.

In a perfectly competitive market because of the competition and the presence of many competitors the consumers are in a position of choosing the best option which does not exist in monopoly market structure.