microeconomics

Public justification of regulatory actions by the government appears to be based on private monopolization fear of an economic activity area. There are several available regulatory options. In Australia, the common approach is creating a monopoly that is owned by the government, which is assumed to act in the interest of the public. The Australia’s Two-Airline policy consists of two firms, which function within an industry with barriers of entry. One firm is government owned (Trans-Australia Airlines) and the other is privately owned (Annett Airline of Australia- AAA). Each of these firms enjoys approximately half of the available market.
The government may intervene in a monopolist industry in order to protect the consumer. Monopolists are known for their inefficiency in the market by providing services and products at higher prices because they set prices. Given there is no competition, monopolists tend to provide low quality products and services. Therefore the government regulates a monopoly-operating firm economically from their pricing behavior. This involves setting prices in order to control the profits level earned by such firms. This setting of air prices under Australia under the now redundant two-airline policy. Economic efficiency is the main reason why the government is mandated to regulate the air transport industry especially in Australia where the two airline firms operate. Economic efficiency refers to as situation in which the real sources of the society are utilized in order to maximize the welfare and wealth for the given income distribution. In the airline markets, economic efficiency requires technical efficiency and allocative efficiency. Technical efficiency is where there is minimization of cost of production for a given quantity or quality of service . Allocative efficiency refers to a situation where there is production and consumption of optimal qualities and quantities of the air services. If the economic efficiency conditions are