1. Characteristics of competitive markets The model of competitive markets relie
ID: 1111794 • Letter: 1
Question
1. Characteristics of competitive markets
The model of competitive markets relies on these three core assumptions:
The first two conditions imply that all consumers and firms are price takers. While the third is not necessary for price-taking behavior, assume for this problem that a market cannot maintain competition in the long run without free entry.
Identify whether or not each of the following scenarios describes a competitive market, along with the correct explanation of why or why not.
1. There must be many buyers and sellers—a few players can't dominate the market. 2. Firms must produce an identical product—buyers must regard all sellers' products as equivalent. 3. Firms and resources must be fully mobile, allowing free entry into and exit from the industry.Explanation / Answer
1) In a small town, there are two providers of broadband Internet access: a cable company and the phone company. The Internet access offered by both providers is of the same speed
Competitive : No
Explanation: Only few sellers wherein ony two firms dominate the broadband Internet market, they are not price takers. In a competitive market a few players can't dominate the market
2) The government has granted a patent to a pharmaceutical company for an experimental AIDS drug. That company is the only firm permitted to sell the drug.
Competitive : No
Explanation: There is not a free entry into and exit from the industry
3) Dozens of companies produce plain white socks. Consumers regard plain white socks as identical and don't care who manufactures their socks
Competitive : Yes
Explanation: It meets all assumptions of perfect competition.
4) In a major metropolitan area, one chain of coffee shops has gained a large market share because customers feel its coffee tastes better than that of its competitors
Competitive : No
Explanation: The product is not a homogeneous.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.