Question

a. Explain in detail what differences in demand that the monopoly ferry operator on the east coast island of Onus will experience compared to the demand that a single ferry operator will experience in the perfectly competitive west coast market of Yuri. (2 points)

Answer 1

As the single ferry operator is operating in the perfectly competitive market he is a price taker i.e. the price they will get will be the one set by the demand and supply of the ferry service in the market. The monopoly ferry will be setting his own price as they are price setters.

The ferry under the perfect market condition will be operating its ferry at the point where the average total cost of operating the ferry will be the lowest. but the monopoly ferry will not be operating at the optimal level and will have a excess capacity in the market.

Apart from this, the competitive ferry service provider will be allocative and economic efficient. the one in the monopoly will be neither.