Explain with the use of diagrams where appropriate how perfect competition leads to allocative productive and dynamic efficiency. (10 marks)
While firms in both the perfectly competitive structure and the monopolistically competitive structure earn zero economic profit in the long run, it can be said that perfect competition is a more efficient structure than monopolistic competition. Discuss this statement with the use of appropriate diagrams. (7 marks for explaining why firms in both market structures earn zero economic profits, 3 marks for explaining why perfect completion is more efficient.)
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What is a natural monopoly? (3 marks) If a firm is a natural monopoly, illustrate with the use of diagrams why is it is necessary to have the price set by a regulatory authority rather than by the market. (7 marks)
One of the defining charateristics of an oligopoly is non-price compertion. Why is the case and how is this related to game theory scenarios such as the Prisoner’s dilemma? (10 marks)