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'Imperfect Competition is wasteful of resources' - Leaving Cert Economics - Question 8 - 2012
Question 8
'Imperfect Competition is wasteful of resources'. Do you agree with this statement? Yes / No Explain your answer.
Worked Solution & Example Answer:'Imperfect Competition is wasteful of resources' - Leaving Cert Economics - Question 8 - 2012
Step 1
Yes. Explain why it is wasteful.
Answer
Imperfect competition often leads to higher prices and lower outputs compared to perfect competition. Firms operating under imperfect competition do not produce at the lowest point of their average cost curve. This inefficiency stems from two main factors: a lack of economies of scale and marketing expenditures that do not directly enhance production efficiency. For instance, when companies invest heavily in advertising their products or services rather than improving operational efficiencies, it results in a waste of resources. This spending means that they may not achieve lower average costs, thus leading to a less optimal allocation of resources in the economy.
Step 2
Or. Explain exceptions regarding wastefulness.
Answer
Alternatively, it can be argued that not all instances of imperfect competition are wasteful. If a firm focuses on innovation and actively invests in developing new technologies or improving processes, it may increase sales and market share without being considered wasteful. For example, a company like Apple invests significantly in research and development, providing it with competitive advantages that contribute to its profitability. This investment leads to innovative products that consumers desire, representing a strategic use of resources that is beneficial to the company and the market as a whole.