production possibilities frontier (PPF): a diagram that shows the productively efficient combinations of two products that an economy can produce given the resources it has available.

The Production Possibilities Curve (PPC) is a model used to show the tradeoffs associated with allocating resources between the production of two goods. The PPC can be used to illustrate the concepts of scarcity, opportunity cost, efficiency, inefficiency, economic growth, and contractions.

Explain how production possibilities curves show efficiency, growth, and cost. Production possibilities curves show efficiency by having inefficiency below the curve. Efficiency is the curve. Growth is anything above the curve.

Any time a society is producing a combination of goods that falls along the PPF, it is achieving productive efficiency. For example, often a society with a younger population has a preference for production of education, over production of health care.

In economics, allocative efficiency materializes at the intersection of the supply and demand curves. At this equilibrium point, the price offered for a given supply exactly matches the demand for that supply at that price, and so all products are sold.

Allocative inefficiency occurs when the consumer does not pay an efficient price. An efficient price is one that just covers the costs of production incurred in supplying the good or service. Allocative efficiency occurs when the firm’s price, P, equals the extra (marginal) cost of supply, MC.

When a purely competitive industry is in a long-run equilibrium, quantity supplied equals quantity demanded (this is the profit maximizing quantity) AND therefore marginal social cost equals marginal social benefit (MSC = MSB), this is the allocatively efficient quantity.

Monopoly sets a price of Pm. This is allocatively inefficient because at this output of Qm, price is greater than MC. Allocative efficiency would occur at the point where the MC cuts the Demand curve so Price = MC. The area of deadweight welfare loss shows the degree of allocative inefficiency in the economy.

The Allocative Inefficiency of Monopoly. Thus, monopolies don’t produce enough output to be allocatively efficient. Thus, consumers will suffer from a monopoly because it will sell a lower quantity in the market, at a higher price, than would have been the case in a perfectly competitive market.

Productive efficiency

Monopolists can also be dynamically efficient – once protected from competition monopolies may undertake product or process innovation to derive higher profits, and in so doing become dynamically efficient. Because of barriers to entry, a monopolist can protect its inventions and innovations from theft or copying.

Monopolies restrict free trade and prevent the market from setting prices. That creates the following four adverse effects: Price fixing: Since monopolies are lone providers, they can set any price they choose. Declining product quality: Not only can monopolies raise prices, but they also can supply inferior products.

Monopolies over a particular commodity, market or aspect of production are considered good or economically advisable in cases where free-market competition would be economically inefficient, the price to consumers should be regulated, or high risk and high entry costs inhibit initial investment in a necessary sector.

The monopoly pricing creates a deadweight loss because the firm forgoes transactions with the consumers. Monopolies can become inefficient and less innovative over time because they do not have to compete with other producers in a marketplace. In the case of monopolies, abuse of power can lead to market failure.

Monopolies are generally considered to have several disadvantages (higher price, fewer incentives to be efficient e.t.c). However, monopolies can also give benefits, such as – economies of scale, (lower average costs) and a greater ability to fund research and development.

Advantages and Disadvantages of Monopolistic Competition

• a few barriers to entry for new companies;
• active business environment;
• customers can obtain a great variety of products and services since the products are differentiated;
• consumers are informed about goods and services available in the market;

Monopolistic competition can bring the following advantages: There are no significant barriers to entry; therefore markets are relatively contestable. Differentiation creates diversity, choice and utility. For example, a typical high street in any town will have a number of different restaurants from which to choose.

The Fast Food companies like the McDonald and Burger King who sells the burger in the market are the most common type of example of monopolistic competition. The two companies mentioned above sell an almost similar type of products but are not the substitute of each other.

First and foremost advantage of perfect competition is that chances of consumer exploitation are very low in case of this type of market structure because in perfect competition sellers do not have any monopoly pricing power and hence they cannot influence the price of the product or charge higher than the normal price …

Disadvantages for Businesses Competition decreases your market share and shrinks your customer base, especially if demand for your products or services is limited from the start. A competitive market can also force you to lower your prices to stay competitive, decreasing your return on each item you produce and sell.

6 Reasons competition is good for Business – Benefits of…

• Awareness & Market penetration –
• Higher quality at same prices –
• Consumption increases –
• Differentiation –
• Increases Efficiency –
• Customer service and satisfaction –

5 areas to drive competitive advantage

• MARKETING. How can your marketing team make claims about your product and the ability to deliver it without knowing the capabilities of your supply chain?
• FINANCE. Here are two departments which ought to be so close their husbands and wives start to get jealous.
• HUMAN RESOURCES.
• LEGAL.
• CUSTOMER SERVICE.

The six factors of competitive advantage are quality, price, location, selection, service and speed/turnaround.

5 Practical Tips To Find Your Competitive Advantage

1. Perform a competitive audit – both with marketing and the actual product. The marketing audit tracks the marketing tactics your competitors use.
2. Talk to your existing customers.
3. Talk to prospective customers.
4. Now, assess your opportunities to improve or develop your competitive advantage.
5. Communicate it!

There are 6 sources of competitive advantage.

• People. People are the driving force behind most competitive advantage.
• Organizational Culture & Structure.
• Processes & Practices.
• Products & Intellectual Property.
• Capital & Natural Resources.
• Technology.

A competitive advantage may include access to natural resources, such as high-grade ores or a low-cost power source, highly skilled labor, geographic location, high entry barriers, and access to new technology.