Perfect Competition and Monopoly

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Question 3 Perfect Competition and Monopoly

(a) I. Explain perfect competition and monopoly market structures, and identify the key factors that distinguish them.

Perfect Competition Market
In economic theory, the perfect competition is a market form in which no producer or consumer has the power to influence prices in the market. According to the website wordIQ.com, in order to classify the market is a perfect competition market, the market must match below criteria: 1. There are a large number of small producers and consumers on a given market 2. None of the producers or consumers can influence the price on their own (ie. Price takers) 3. Goods and services are perfect substitute (ie. The goods or services is …show more content…

With the exclusive licenses and many government restrictions, it makes a big barrier for the new entrant to this market.

As mention, KMB is the only bus service provider in Kowloon and New Territories, therefore, the number of service provider is one, and this meets the requirement of being a monopoly market.

For the nature of product, there is no buses allowed to be operated in Kowloon and the New Territories, therefore, this service is unique in the area, and bus users cannot choose the service from other providers.

III. Discuss (with examples) how the monopolist can practice price discrimination
Price discrimination is a pricing technique that is used by monopolist, used to maintain an economic profit. With this technique, seller charges different customers different prices for the same product, not justified by cost differences.

For example, mobile phone service provider, “Three Hong Kong”, is the exclusive official supplier of Apple iPhone 4 in Hong Kong. In other words, the market for iPhone 4 is a monopoly market. “Three Hong Kong” is applying price discrimination technique in the price setting of iPhone 4. For example, for the mobile phone users with high volume usage, the price of the handset is lower than the users with low volume of usage.

IV. Using your case study of monopoly provide an argument for and against monopoly.

Argument for monopoly In the monopoly market, there is no competition in the market, and

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