1. Discuss using examples from a leisure industry of your choice, the extent to which competition creates efficiency.
June 2013
1. Discuss using examples from a leisure industry of your choice, the extent to which competition creates efficiency.
There are many ways in which a firm or leisure industry can be considered to be efficient. First of all they may be productively efficient. This is where they would be operating at their lowest average cost, meaning they are benefiting from all economies of scales and experience no diseconomies of scale. They particularly must avoid any waste of factors of production. Allocative efficiency exists when the firm is operating where Price is equal to Marginal Cost. When a firm or industry is allocatively efficient this means they are producing what society wants and allocating resources to increase both output and quality. This may be in the form of specialisation. If dynamic efficiency exists this means that the firm or industry is experiencing abnormal profit. Their aim must always be to increase output in the future often by investing in research and development, such firms are often benefitting from monopoly power. Pareto efficiency is where production of one good can increase without the production of another decreasing.
I believe that increased competition will create productive efficiency. This is because if there is increased competition through an increase in the supply of for example entertainment channels entering the TV broadcasting industry this will result in firms having the reduce their prices of advertising slots due to the potential fall in the number of viewers. This will mean that they are now price takers in the market and as a result their revenue will decrease. As the firms are profit maximisers they will be unsatisfied with their revenue falling and as a result they will need to reduce their average cost in an attempt to maintain their previous profit level. They will reduce their average cost by avoiding any waste of factors of production in the production of the good/service and in order to do so they will often
1. Discuss using examples from a leisure industry of your choice, the extent to which competition creates efficiency.
There are many ways in which a firm or leisure industry can be considered to be efficient. First of all they may be productively efficient. This is where they would be operating at their lowest average cost, meaning they are benefiting from all economies of scales and experience no diseconomies of scale. They particularly must avoid any waste of factors of production. Allocative efficiency exists when the firm is operating where Price is equal to Marginal Cost. When a firm or industry is allocatively efficient this means they are producing what society wants and allocating resources to increase both output and quality. This may be in the form of specialisation. If dynamic efficiency exists this means that the firm or industry is experiencing abnormal profit. Their aim must always be to increase output in the future often by investing in research and development, such firms are often benefitting from monopoly power. Pareto efficiency is where production of one good can increase without the production of another decreasing.
I believe that increased competition will create productive efficiency. This is because if there is increased competition through an increase in the supply of for example entertainment channels entering the TV broadcasting industry this will result in firms having the reduce their prices of advertising slots due to the potential fall in the number of viewers. This will mean that they are now price takers in the market and as a result their revenue will decrease. As the firms are profit maximisers they will be unsatisfied with their revenue falling and as a result they will need to reduce their average cost in an attempt to maintain their previous profit level. They will reduce their average cost by avoiding any waste of factors of production in the production of the good/service and in order to do so they will often