Assignment on Economics PDF

Running head: ECONOMICS ASSIGNMENT
Economics Assignment
Name of the student
Name of the University
Author Note

1ECONOMICS ASSIGNMENT
Table of Contents
Answer one:...............................................................................................................................2
Answer two:...............................................................................................................................6
References:.................................................................................................................................9

2ECONOMICS ASSIGNMENT
Answer one:
1.
a.
The Auckland International Airport follows monopoly market structure in New
Zealand. This is the busiest and largest airport across the country. Monopoly market
represents single seller and large number of buyers in a specific industry. Thus, two
characteristics of this monopoly market are barriers to entry and profits (Zeuthen, 2018).
Firstly, the monopolist set up significant barriers for other firms to enter into the market. This
is because monopolist cannot control the industry completely if supply increases into the
market after entering of new markets. Hence, in monopoly market, firm and industry has the
same meaning. Secondly, in monopoly market, the monopolist firm can earn supernormal
profits in both short-run and long run. On the contrary, the monopolist can also incur loss.
This makes the chief difference with perfect competition. In long run, a perfectly competitive
market cannot earn super normal profit.
b.
In economy, the concept of allocative efficiency occurs when price equates with
marginal cost. However, in monopoly market, both marginal cost and average cost remain
below price and consequently the market experiences loss regarding allocative efficiency.
This further causes market failure (Holmes, Hsu & Lee, 2014). The monopolist firm cannot
experience this allocative efficiency in long run, as the chief focus of this firm is to extract
price from consumers. This price remains higher compare to the production costs. On the
contrary, a competitive market achieves this condition in long run. With the help of following
diagram, this situation can be explained.